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of personal property such as household furniture, it is not necessary that a serviceman have paid the personal property tax in his domicile in order to secure exemption from a like taxation in the host state.16 If the item of personal property is an automobile, however, he must have paid the license, fee, or excise of his domicile in order to secure protection from the motor vehicle licenses, fees, or excises imposed by the host state. This is so even if the domicile would not require registration by virtue of the serviceman being out of state.17 The practical effect is that a serviceman has the option of registering his automobile in either his domicile or the host state.
Suppose that the serviceman chooses the host state. The most immediate and obvious advantage of this is convenience—particularly when purchasing a new car. However, there are several problems which may arise. First of all, by buying the state license tag, he may subject himself to the requirement of purchasing any license tag which the city or county of his host state demands.18 In addition, although such registration will not of itself make him a domiciliary of the host state, it deprives him of one of the items which states use to evaluate his claim of domicile elsewhere, i.e., registration of his automobile in his domicile. He may thus find it more difficult to substantiate his claim of exemption from personal property taxation on his automobile and other personal property which the host state may be prompted to assert as a result of this registration. Of course, his automobile will still be subject to personal prop
taxation only in his domicile.19 Also, if he is transferred to duty in another state other than his domicile, he may not be permitted by that state to maintain the registration of his former host state. He may thus be put to the inconvenience and possible additional expense of changing registrations in the middle of the year. He may also be required to obtain a driver's license from the host state if he registers his automobile there.
Finally, at such time as he returns to his domicile, either by reason of retirement, discharge, or assignment there, he will have to obtain the registration of that state. If that state has a use tax, he may find himself in the situation of being required to pay a use tax on the vehicle to obtain registration in his domicile, whether or
not he has previously paid a sales or use tax to the state in which the vehicle was purchased.20 As the treatment of this situation varies with individual states, a determination of the tax consequences upon registration in the domicile should be sought from that state before registering the vehicle in the host state if there is a possibility that he may be returning to his domicile with the same vehicle. A list of addresses of state motor vehicle offices is maintained at all Navy legal assistance offices.
Now let us examine some of the relative merits of registration in the state of domicile. On the plus side, this will give the serviceman a strong point to substantiate his claim of domicile there if the host state requires him to prove that he is entitled to exemption from their taxation. It also relieves him of the inconvenience of changing his registration each time he is transferred to a new host state. On the other side of the coin, the registration fees of his domicile may be substantially greater than that of the host state (another point which can be checked with the legal assistance office). In addition, he may have to pay the use tax, if any, imposed by his domicile, even though he never brings the automobile into the state. This is another point on which there is no uniformity, and which can be determined by correspondence with the state of domicile.
It is possible that the serviceman may not have the option of registration in his domicile. In Colorado, Delaware and Hawaii, it is a requirement that a car be within the state before its initial registration. Alaska will initially register only new cars outside the state. Connecticut requires inspection of a used vehicle before registration. In the District of Columbia, new or used foreign cars and American cars from nontitle states cannot be registered before entry.21 In some of these states it may be possible for a serviceman to secure an exemption upon individual application. It should also be kept in mind, however, that if the automobile is jointly owned by the serviceman and his wife (or another person not entitled to the protection of the Soldiers' and Sailors' Civil Relief Act) the interest of the other person is sufficient for the host state to compel registration there.
16. Supra note 8.
20. A sales tax is imposed upon or measured by sales. A use tax,
or compensating tax, is designed to supplement a sales tax and is usually levied on the storage, use or consumption in the state of tangible personal property other than property upon which the sales tax has been paid. CCH State Tax Guide par. 60-000
(Jan. 29, 1963). 21. Digest of Motor Laws, American Automobile Association (33d
PROVING YOUR DOMICILE
It can thus be readily seen that there is no simple answer to the question of where an automobile should be registered. The important thing is to consider the pros and cons and iron out anticipated difficulties before making the decision.
Ownership of a trailer involves all the considerations of personal property in general, and presents some new taxing twists. In addition to its identity as an item of personal property, it may be treated as a motor vehicle subject to state motor vehicle registration requirements. In a few states, a house trailer is treated as real property.
The greatest significance of a house trailer being taxed as real property is that such a classification would remove it from the protection of the Soldiers' and Sailors' Civil Relief Act (which, as previously mentioned, does not extend to real property). There is little doubt that a state may reasonably classify a house trailer as real property in some situations, such as where a person places a trailer firmly and permanently upon a foundation on his own property. It seems just as clear that there are other situations in which it would be entirely unreasonable for a trailer to be classified as real property, as when it is in transit over the highways. Between these two extremes lies a grey area which will probably not be illuminated until there has been litigation. The Pennsylvania statute lies in this area. Under that statute, house trailers are classified as real property if they are “* * *
* permanently attached to land or connected with water, gas, electric or sewage facilities. *
A law which would deprive a serviceman of his protection under the Soldiers' and Sailors' Civil Relief Act at the instant he engages his electrical connections may have to face a court test if so applied.
In situations in which a house trailer is classified as a motor vehicle, the same requirement as to registration would be applicable as discussed above under the heading of automobiles. Even in such a situation, however, a failure to comply with the registration requirements of the state of domicile would entitle the host state only to exact motor vehicle taxes qualifying as licenses, fees, or excises. The host state could not, for example, exact an ad valorem tax as well.23
As you can see from the foregoing, it may be quite important to you to be able to prove that you are a domiciliary of another state in order to avoid taxation by the host state. As you are residing in the host state, the taxing authorities there will presume that you are subject to their taxes. The burden is placed on you to prove that you are entitled to the exemption.24 You may be almost assured of success if you can show that (1) you vote in your domicile, (2) you pay any income or other tax imposed by your domicile, and (3) you register your automobile in your domicile. Absence of any one of these will not necessarily be fatal to your cause, but it may have a weakening effect. You can also get into difficulty if you have done anything inconsistent with maintaining your original domicile, such as voting in another state or paying income taxes to another state. You may be asked by your host state to complete a comprehensive questionnaire to substantiate your claim of exemption, and inconsistencies in your conduct will be readily apparent. The answers supplied by you can easily be verified through the exchange of information agreements in effect between the Federal Government and most states.
Being able to prove your domicile is becoming more important each year as the states are expanding their search for new sources of revenue. Cases have been reported in which application by a dependent child for admission to a state university has resulted in a check by the university with the tax department of the state to verify that the parent is in good standing as a taxpayer.
HOW SHOULD PROPERTY BE OWNED?
The question of who should be the owner of your personal property is another one to which there is no ready answer which will be applicable in all cases. The decision should be based not only on a consideration of the personal property tax aspects, but also on a consideration of the laws governing succession of personal property at death and death taxes.
If personal property taxes during life are the only, or the primary, factor of importance in a particular situation, the factor of convenience might well dictate that all personal property be owned by the serviceman individually. As already noted, if an automobile is owned jointly
22. Pa, Stat. Ann, tit. 72, sec, 5020-201 (1950). 23. Snapp v. Neal, 382 U.S. 397 (1966).
24. District of Columbia v. Murphy, 314 U.S. 441 (1941).
I by the serviceman and his wife, it will be subject
to the motor vehicle registration requirements of the host state, and the serviceman as well as his wife may be required to obtain a driver's license from the host state. Individual ownership by the serviceman can avoid such inconveniences. Such individual ownership may also result in a significant dollars and cents savings if the personal property taxes imposed by the domicile are relatively small, or if the domicile does not tax a serviceman's personal property which is out of state.
Notwithstanding the convenience and possible property tax advantages of individual ownership by the serviceman, other factors relating to the passage of title at death, and the amount of death taxes due, may prompt some persons to own property jointly, or in some cases, even to place title in the wife alone. An article entitled, “Death Taxes and Estate Planning", by Captain Jerry R. Siefert, USN, appears in the January, 1964 edition of the JAG JOURNAL. It is not intended to review here all the factors contained in that excellent and comprehensive article. There are, however, a few specific questions of property ownership which lend themselves to a more expanded coverage.
There is also the possibility of having the property owned by the wife only. This would leave her clear title in event of the husband's death, and would keep the property out of the husband's estate for Federal Estate and state inheritance tax purposes. It would, however, result in such property being fully subject to personal property tax by the host state during her lifetime, and would be fully includable in her estate if she should die first. If domestic difficulties should arise, the disastrous consequences possible to the husband from such an arrangement are fairly obvious. For these reasons, many servicemen (in common with husbands in general) shy away from ownership of personal property by their wives only.
SUCCESSION TO TITLE Title to property which is owned by a serviceman individually must pass through his will, or by the laws of intestate succession, to his survivors, whereas jointly owned property passes automatically by operation of law to the surviving owner (or owners) upon the death of one joint owner.25 Thus, in the case of automobiles, shares of stock, etc., which are jointly owned, the widow should have little or no difficulty in having such items re-registered in her own name only, and thereafter being able to treat them as her own property. On the other hand, if such items have been held in the name of the serviceman only, the widow could probably not get a clear title to them until after the estate had been settled, which can be a protracted process, sometimes extending over several years. Of course, there may be no option as to who will own the property in some cases. If an automobile is to be financed, for example, the lending institution may insist on title being held jointly by husband and wife. A compromise may be possible if the lender is willing to accept the joint liability of husband and wife on the note, while permitting title to be taken in the name of the husband alone.
Insurance policies on the life of the husband are unique in that their ownership by the wife can result in a substantial estate tax savings if the husband dies first, with a relatively small estate tax burden if the wife should die first, and at the same time provide minimal possibilities of injury to the husband in event of domestic disharmony.
Most states do not place an inheritance tax on insurance proceeds payable to named beneficiaries.26 For federal estate tax purposes, however, proceeds of insurance, even though payable to named beneficiaries (such as the wife) are includable in the estate of a decedent if at his death he possessed any "incidents of ownership" in them.27 These incidents include the right to change the beneficiary, the right to borrow on the policy, the right to surrender it for its cash value, and so forth. The typical life insurance policy may give all or some of these rights to the person who is the named insured. These rights, like other property, can be given away to your wife (or to anyone else). Such a transfer does constitute a gift to the donee, subject to the Federal gift tax laws, and any applicable state gift tax laws. However, the value of the gift is not the face of the policy, but rather the cost of replacing the policy on the date of the gift. When not otherwise readily ascertainable, this value may be approximated by a computation involving the "interpolated terminal reserve” of the policy.28 This information as to the value of the policy for gift tax purposes is normally provided by the insurance company, so it is not necessary to become involved with the details of its computation.
26. 2 CCH Fed. Est. & Gift Tax Rep., par. 7303 (Sept. 1958). 27. 26 U.S.C. 2042 (1954). 28. 1 CCH Fed. Est. & Gift Tax Rep. par. 3360.03 (Oct. 17, 1963).
25. 20 AM. JUR, 2d, Cotenancy and Joint Ownership. 83.
turbing to have a policy on his life being maintained by an estranged wife.
RETIRED SERVICEMAN'S FAMILY
The value computed will normally be somewhat higher than the cash surrender value of the policy.
In most cases assignments can be made in such a way as to take full advantage of the $3,000 annual exclusion, and $30,000 lifetime exemption, under the Federal gift tax laws, with the result that no federal gift tax will be due.29 The payment of the annual premiums thereafter by the insured will constitute a gift to the donee, but should be well within the $3,000 annual exclusion. There may be a small amount of gift tax due in some states on such a transfer.
When the decision has been made to place the incidents of ownership of insurance policies on the life of the husband in the wife, a written assignment, to be approved by the home office of the insurance company, is almost always required. This may be true even if the wife has made the purchase of the policy and is paying the premiums from her independent funds, as some life insurance policies by their own terms place some of the incidents of ownership in the named insured regardless of who has purchased the policy. The assignment is made in writing on a form provided by the company. An assignment will be necessary even when purchasing flight insurance. 30 If insurance is purchased at a coin operated machine, an assignment form may be obtained from the insurance desk which is almost always located in lobbies of airline terminals. Where no form is available, use of the following language may result in an effective transfer: I hereby assign, transfer and set over unto.
all right, title and interest which I possess in policy #
issued by including any and all benefits due me thereunder. Executed this
The Retired Serviceman's Family Protection Plan,32 formerly known as the Contingency Option Act, has for many years been included in the gross estate of a deceased serviceman.33 The amount included was the entire present value of the annuity payable to the widow, child, or children of the deceased retired member. However, effective with estates of decedents dying after 31 December 1965, the entire amount of the annuity is in most cases excluded from the gross estate for Federal Estate Tax purposes.34 An exception is found in some situations where a retired person is not entitled to retired pay or retainer pay, and is required to make deposit in the Treasury of the amounts that otherwise would have been deducted from his pay to provide the annuity.35 This new and favorable tax treatment may prompt eligible servicemen on active duty who chose not to elect an annuity because of the former unfavorable treatment to reconsider their election. An election may be changed if made not less than three years before the first day for which retired or retainer pay is granted. 3
CONCLUSION At this point the reader may feel that he has been presented with many more problems than answers. If so, this article has accomplished its purpose, for it is intended only to point out the areas in which an individual decision must be made by each person. Further information and assistance for individual cases are available from any Navy Law Specialist or from a private attorney. However, in each case the decision must ultimately turn upon the resolution by the individual himself of the advantages and disadvantages of the alternatives available to him, based in the final analysis on his own personal preference. Although the tax aspects should be given consideration, sight must not be lost of the effect on the use and enjoyment of property under tax saving alternatives. When personal affairs are being planned, the most important thing is not how much taxes can be saved, but rather the ability to use and enjoy property now owned.
(Signature) By making such an assignment, the husband does deprive himself of the opportunity to pledge the policy for a loan, or surrender it for cash. The donee wife, however, may perform these functions. Should the wife die first, the policy would be included in her estate at its then current value which is computed as described above for the computation of gift value.31 If domestic difficulties should arise, the cash surrender value could be a total loss to the husband, but he would not be obligated to continue paying the premiums. He might, however, find it somewhat dis
29. For a full discussion see Siefert, Death Taxes and Estate Plan
ning, 18 JAG J. 207 (Jan. 1964).
32, 10 U.S.C., Chap. 73 (1956).
Bull. 1959–2, 33.
RULES OF THE ROAD THE LEGAL INTERPRETATIONS OF "RISK OF
LIEUTENANT COMMANDER RICHARD J. McCARTHY, USN*
"Allowing oneself unnecessarily to come to close quarters is the greatest single cause of collisions at present.” This quote sums up Lieutenant Commander McCarthy's concern with the duties of vessels which are approaching each other so as to involve risk of collision. In expressing this concern, he discusses statistics on collisions and violations of Rules of the Road; the history of the term "risk of collision"; and judicial interpretation of that term by British and American courts. He concludes that the mere possibility of collision brings the rule into operation and that this is one of the keys to prevention of collisions at sea.
HEN THE FIRST two mariners set out
to sea in their respective vessels marine collisions became a distinct possibility. As the number of vessels plying the waters of the world increased, the possibility became a probability. Today, collisions at sea are a stark reality, and the incidence of marine collisions is steadily increasing. During the year 1962, there was a total of 1818 ships in collision.'
Based upon the twin realities of the total number of ships engaged in waterborne commerce, and the fact that they are operated by men who are subject to human errors and frailties, it is not likely that collisions can be eliminated altogether. However, the increasing number of collisions should be, and is, of grave concern to all mariners.
In the search for new ways and means to reduce the number of collisions at sea the advent of radar and its development as an aid to navigation has been the single most significant technical development since World War II. Since that time, radar has done a great deal towards lightening the burdens of those who are responsible for the safety of ships at sea. However, in spite of radar's much-heralded introduction as an aid to navigation, the number of collisions between vessels has steadily increased, and even increased in frequency with the number of radar
sets in use. Indeed, this navigational aid has, in some cases, been characterized as the villain, giving birth to the phrase "radar-assisted collisions”.? As a matter of statistical fact, in almost every collision case involving radar which was investigated by the U. S. Coast Guard, one conclusion that repeatedly appeared was that the improper use of radar or improper interpretation of the information provided by the radar was a major contribution to the disaster. Indeed, it may be stated that this is the primary conclusion that is reached in almost all collisions in which one or more of the vessels involved was equipped and operating its radar.3 For those interested in the legal aspects of radar in collision cases, two recently published articles are worthy of note and recommended to those wishing a more detailed study of this problem.
However, it is not the purpose of this article to discuss in detail the legal effect of radar in marine collisions. It is mentioned only to emphasize that much more has yet to be done in order that the full potential of radar, as a navigational aid in reducing collisions, can be realized. The history of the development of the present international regulations for the prevention of collisions at sea clearly indicates that changes to the regulations have been slow to
2. Wright, Radar Assisted Collisions, Marine News, Dec. 1959, p. 16;
see also Judge Medina's opinion in Polarus S.S. Co. v. The
T/S Sandefjord, 236 F. 2d 270 (2d Cir. 1956); 1956 A.M.C. 1779. 3. Afran Trans. Co. v. M/T BERGECHIEF, 274 F. 2d 469 (2d
Cir. 1960); 1960 A.M.C. 1380. 4. Healy, Radar Decisions Re-examined, 18 JAG J, 233 (Feb.-Mar.
1964); Wylie, Legal Aspects of Radar and Collision, Jour, Inst. Nav., Apr. 1965, p. 203.