Untitled Texas Attorney General Opinion

. . Honorable Robert S. Calvert Opinion No. M-34 Comptroller of Public Accounts Aus tin, Texas Re : Whether intangible prop- erty belonging to a non- resident citizen but located in Texas Is subject to inheritance tax upon Dear Mr. Calvert: the non-resident'sdeath. In connection with your request for an opinion of this Office on the above captioned matter, you have supplied us with the following Information: "[The Decedent] died on April 28, 1962, at which time she was a non-resident citizen of the United States and resided in the Republic of Mexico, was not engaged in bus- iness In the State of Texas, and had money on deposit in banks doing business in Texas, and was the owner of shares or share accounts In savings and loan associationsdoing business In Texas described as follows: First National Bank In Dallas, Dallas, Texas Checking Account No. 48 0618 8 $ 1,011.:7 Savings Accounts First National Bank In Dallas, Dallas, Texas Account No. 180643 50,375.00 Alamo National Bank, San Antonio, Texas ACCOU~ NO. 62223 5o,375.00 Frost National Bank of San Antonio, San Antonio, Texas Account No. 1218336 50,250.OO - 149 - l Honorable Robert S. Calvert, Page 2 (M-34) Dsllas Federal Savings and Loan Association, Dallas, Texas Account No. A121.2 60,000,00 Farm and Home Savings Association, San Antonio, Texas Account No. T-22804 25,ooo.oo First Federal Savings and Loan Association,San Antonio, Texas Account No. r7673 25,ooo.oo Note Receivable Ola General de Aceptaclones, Monterrey, N.L., Mexico, note dated January 12, 1962, interest 8s 23,ooo.oo Interest accured from January 12, 1962, to April 28, 1962 466.67 $282,478.64 "In view of your Opinion No. C-8, this Depart- ment has Included the above described assets for Inheritance tax purposes and levied a tax thereon in the amount of $7,79&,70, to which the attorney for the estate, . . . does not agree, because of the passage of Senate Bill 436 bjrthe 58th Le islature which became effective on May 1& , 1958. This Bill provided a retroactive provision similar to Senate Bill 344, Acts of 1959, which has been passed on by the Austin Court of Civil Appeals Texas, et al. vs. F. W. Beazley, 40;t%'e(::d) 905, n.r.e. "We are furnishing you herewith a letter brief from [the attorney] dated January 11, 1967, stating his position, and we kindly ask that you advise tffisDepartment on the controversy In question. - 150- kongrable Robert S. Calvert, Page 3 (M-34) We quote the following provisions from Senate Bill 436, Acts 58th Leg., 1963, ch. 158, P. 445: “Art. 14.28. Exemptions Applicable to Non-Residents “‘The provisions of this Chapter shall not apply to money on deposit in any bank doing business In Texas or to shares or share accounts In any savings and loan association doing business In Texas owned by non-residentsof Texas who are citizens of a foreign country and who are not engaged In business in Texas, or owned by non-resident citizens of the United States who reside In a foreign country and who are not engaged In business in Texas.’ “Sec. 2. The provisions of this act shall apply In respect to a decedent dying before the effective date of this Act If the tax imposed by Chapter 14 of Title 122A, Taxation-General,VernonIs Texas. Civil Statutes, has not been paid prior to the effective date of this Act, and shall also apply In respect to a decedent dying after the effective date of this Act. “Sec. 3. The fact, that there Ir a question whether money on deposit in ?exas banks and other intangible personal prop- erty owned by non-residentsof Texas who are citizens of a foreign country and who are not engaged In business In Texas, or owned by non-resident citizens of the United States who reside In a foreign country and who are not engaged in business in Texas is taxable under the provisions of Chapter 14 of Title 122A, Taxation-General,Revised Civil Statutes of Texas, and the fact there Is confusion and doubt as to whether such property is taxable under the provisions of such Chapter, and the importance of this matter - 151 - konvable Robert S. Calvert, Page 4 (M-34) and the crowded condition of the calendar In both Houses, create an emergency and an imperative public necessity that the ConstitutionalRule requiring bills to be read on three several days In each House be suspended, and said Rule Is hereby suspended; and that this Act shall take effect and be in force from and after its passage, and It 1s so enacted." In the letter brief submitted in connection wlth your request, it is pointed out that the 1965 revision carried for- ward only the first Section of Article 14.28 as Article 14.015. Acts 59th Leg., 1965, Ch. 402, s 4, 0. 830. It is further Pointed out that the Savings Clause of said Act declared that 'The repeal of any laws by this AC' shall not affect or 'impair any act done or obligation, right,-t/ accrued or exlst- Ing under the authority of the law repeaied . . .'!;and that in view of this orovislon of the Savings Clause, the omission of Section 2 of the former Article 1k.28 is Immaterial. We reach this question only if we determlne that exen.ptloncould have been accorded the Decedent In this case under Section 2. The attorney for the taxpayer has advanced several distlnc- tions between the case of Calvert v. Deazle& 4C3 S.W.2d 905 (Te~.Clv.App.1966, error ref., n.r.e.) and the instant case. 'We will discuss the alleged distinctionsas they arise In the following summation of Beazley. In Deazle the Decedent died on December 28, 1962. He devised+ As residuary estate to Beazley Foundation,Inc., a Virginia charitable corporation,hereinafter referred to as The Foundation. At the date of Decedent's death, and at all times material thereto, under the laws of the State of Virginia, all bequests to charitable corporations,wherever situated, were exempt from inheritance taxes. Exemption was claimed under Acts 58th Leg., 1963, R.S. ch. 77, Sec. 1, p. 130, which became effective April 29, 1963, approximatelyfour months after the date of the death of the Decedent. This Amendment reads as follows: IJ Emphasis supplied throughout. - 152 - konqrable Robert S. Calvert, Page 5 (M-34) "Provided, further, that this Article shall not apply to property passing to or for the use of any religious, educational or charitable organization, Incorporated, unincorporatedor in the form of a trust, If (either at the time the property passes or at any time prior to the payment of the tax) the laws of the jurisdictionunder which such organization is organized or is operating provide an exemption from death tax of any character with respect to prop- erty passing (1) to or for the use of such an organization,or (2) to or for the use of such an organizationorganized or operat- ing within the State of Texas, or (3) L bo or for the use of such an organizationorganized or operating witnln any other jurIsd' IC~IOP. c which grants a reciprocal exemption. For the purposes of this paragraph, jurisdlc- tion means any state or territory of the United States or the District of Columbia." At the date Of the Decedent's death, the provisions of Article 14.06 pertaining to charitable exemptions did not contain the provisos underscored above; but The Foundation relied on Article 14.07 as being applicable to the 1963 Amendment to Article 14.06. The court in Beazley disposed of this contention at page 9Oe. :'Articlelb.07 was enacted as Section ;,o; 2;;. N;.s34;, ;t& 186, Acts 1959, Section 1 of S.E. Not 344 a;endel?what was then Article 7122 of the Revised Civil Statutes of Texas of 1925, as last amended, by pro- viding an exemption for property passing 'to or for the use of a religious, edu- cational, or charitable organization which conducts its operations on a regional basis, one such region of which includes the State of Texas, or any part thereof.' 'Section 2 of S.B. No, 344 reads as follows: "'The provisions of this Act shall apply in respect to a decedent dying before the effective date of this Act - 1x3 - Hon$rable Robert S. Calvert, Page 6 (M-34) I If the tax Imposed by Article 7122, as here- tofore amended, has not been paid prior to the effective date of this Act, and shall also apply to a decedez mg after the effective date of this Act.' (Italicsours.) 'The plain language of Section 2 limited its appllcatlon to the new exemption therein provided -- an exemption ftotappli- cable to or claimed by appellees. The court traced the Legislative history of Article lk.07 and concluded that it also supported the foregoing conclusion. We are therefore in agreement with the following asserted distinction: involved different +-~nvolved provisions from the prov s;on in this &~mption The following portions of the court's opinion in Ekazley deal with its conclusion that the law in force at the time of a decedent's death is controlling: "It is our opinion that the laws in effect when decedent died must control. The following authorities so hold. Morris v. Calvert, 329 S.W.2d 117, Austin, writ ref., n.r.e., 85 C.J.S. Taxation $ 1133, a and e. "The following cases hold that it is the relationship of the parties or their status as of the time of a decedent's death which controls their classification for inheritance tax purposes under the laws of this State. Lewis v. O'Hair, 130 S.W.2d 379, Austin, n. w. h., Johnson v. Davis, 198 S.W.2d 129, Austin, writ ref., n.r.e., Hamilton v. Calvert, 235 S.W.2d $53, Austin, writ ref., Cahn v. Calvert, 159 Tex. 365, 3.21S.W.2d 869. "These cases illustrate the principle that in the assessment of death taxes death of decedent is the critical event. - 154 - Honorable Robert S. Calvert, Page 7 (M-34) ?l!hescheme of our inheritance tax laws Is stated In Calvert v. Fort Worth National Hank, 163 Tex. 405, 356 S.W.2d 918, as follows: "'Historically,death duties "In all countries rest In the essence upon the principle that death is the generating swrce from which the particular taxing power takes its being, and * * * it is the power to transmit, or the transmlsslon from the dead to the living, on wh+ch such taxes are more Immediatelyrested. See Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969. From a reading of our inheritance tax statutes, we think the basic plan and purpose of the Legislature was to levy the tax upon the privilege of succeeding to property belonging to a decedent at the time of his death. Article 14.01 speaks of property passing by will or by the laws of descent or dis- tribution, whether belonging to inhabit- ants of this State or to persons who are not inhabitants. The only property that is ordinarily regarded as passing by either will or descent is that which was ovmed by the testator or intestate at the time of his death.' "Article 14.15, Vol. 20A, Taxaticn- General, V.A.T.S., provides, in part that inheritance taxes 's‘nallbe a lien upon such property, (see Art. 14.01, id.) from the death of the decedent until paid.' "This Article is consistent with the stated plan of these tax laws In Fort Worth National Hank, supra, and demon- strates that the date of decedent's death is the date from which the rig$ts of the parties emanate and generate. - 155 - ‘HonorableRobert S. Calvert, Page 8 (M-34) , v We do not agree with the second asserted distinction that the foregoing principles are applicable only to chari- table Institutionsas opposed to the exemption provided by Article 14.28. The third asserted distinction that Beazley 'was actually decided on the basis that the claim for exemption was urged by it under the provisions of Article 14.06 (Acts of 1963) and Article 14.07 (Acts of 1959) and that Article 14.07 applied only to Article 14.06 (Acts of 1939) and did not apply to Article 14.06 (Acts of 1963)." We think this dlstlnction must be considered In connection with the plain holding In the first paragraph above quoted that the laws In effect when the decedent died must control. In the Instant case, Article 14.28 was not in effect at the date of the Decedent's death. We agree with the fourth assertion that E+eazle not expressly pass on the constitutionalityof d Zds7. The court so stated at page 908. We quote the following excerpt from page 10 of the brief: I! . . . it is our position that there was no inheritance tax law In effect in Texas on the date of Mrs. Woods' death on August 28th, 1962, applicable to money on deposit in banks doing business In Texas or to shares or share accounts in savings and loan associations doing business in Texas owned by non-resident citizens of the United States residing in a foreign country and who were not engaged In business in Texas, as was found by the Legislature as set out in Section 3 of Senate 9111 436, effective May 14th, 1963,(Article 14.28) as set out above." It is further argued that Section 3 of Article 14.28 evidences an unequivocal recognition that a question existed as to the taxability of intangibles under situations covered by the statute. Attorney General's Opinion No. c-8 (January 31, 1963) held that intangible personal property located in Texas and owned by a non-resldent alien Is, upon the non-resident'sdeath, subject to an inheritance tax under - 156 - 'HonprableRobert S. Calvert, Page 9 (M-34) the provisions of Chapter 14, Title 122A, Taxation-General, Vernon's Civil Statutes, Senate Bill 436, Acts 58th Leg., 1963, ch. 158, p. 445, became effective May 14, 1963. The caption of Senate Bill 436 states that it Is amending said Chapter 14 'lbyadding thereto a new article relating to certain exemptions from the inheritance tax applicable to certain non-residents; :. . Actually, we think the cap- tion Indicates a legislative recognition of taxability absent the specific provision for exemption. However, regardless of legislative knowledge or intent, we come ultimately to the constitutionalityof Section 2 of Article 14.28. Although neither Beazle Morris v. Calvert, 329 S.W.2d 117 ref., n.r.e.1 are specificallycontrolling on this p;int, we think an analysis of Morris, together with other authori- ties hereinafter discussed,pports our conclusion that this statutory provision is violative of both Sections 51 and 55 of Article III of the Texas Constitution. Morris, cited at page 906 in Reazle with theowin& factx. Tne deced~d~~~s~Odn~%ned bequeathed property to a charitable foundation organized 1 in the form of a trust. Prior to its amendment in 1955, Article 7122, Vernon's Civil Statutes, as amended by Acts 43-d Leg.: 1933, ch. 192, Sec. 2b(20), p. 581, provided an exemption for property passing "to or for the use of any religious, educational or charitable organization when such beauest. devise or gift is to be used within this State."* This provision Gas construed in Presbyterian Church !~nthe U.S. v. She-, 10. S.W.2" 282 (Tex.Civ.hpp.1345, error rer.. n.r.e.1. as reauirinrrthe reauisite limitation to use within this.State to be expressed-int,hewill. No such limitation was expressed in the decedent's will; and, under the terms of the trust indenture, The Foundation was not limited in its operation to the State of Texas. Senate Bill 266, Acts 54th Leg., 1955, ch. 389, p. 1032, referred to throughout as the 1955 Amendment, provided, In effect, that property passing to charitable organizations could gain exemptions from inheritance taxes, even though the instrument effectuating transfer did not require the charitable - 157 - konc+rable r Robert S. Calvert, Page 10 (M-34) gift to be used within this State If prior to the payment of inheritance taxes, the property is Irrevocably committed to use within the State. Section 2 of the 1955 Amendment pro- vided as follows: “The provisions of this Act shall apply only In respect to a decedent dying after the passage of this Act.” It was contended that the phrase "after the passage of this Act" meant after approval by the Governor, which ,had occurred prior to the death of the decedent, rather than the effective date of the Act, which occurred subsequent to the death of the decedent. Morris held that the phrase In ques- tion meant the effective-of the Act. The 1957 amendment to Article 7122 amended the 1955 amendment by providing that it “shall apply to the bequests, devises and/or gifts of decedents dying after June 3rd, 1955, being the date on which the Governor of Texas approved the Act last mentioned," Acts 55th Leg., 1357, ch. 236, § 1, p. 489. With regard to this amendment, at page 122 of the majority opinion in Morris, the court made the following comment: “There could be a serious question as to the constitutionalityof the 1955 and 1957 amendments if either be construed as applying to the estates of decedents prior to the effective date of the Act as being in violation of Sections 51 and 55 of Arti- cle III, Texas Constitution,prohibiting the releasing of a liability, etc., to the St$te, or making any grant of public money, etc. This statement in recognizing the constitutionalproblem is significant In view of the dissenting opinion. In this dissent Justice Hughes discussed Sections ’ 8. 51 and 55 of Article III- of the Texas Constitution,and 2 Section 51 of Grticle III prohibits the Legislature from maITingany grant or authorizing the making of any ,-rantof public money “to any individual, association of individuals,municipal or other corporation whatsoever . . . .' Section 55 of Article III prohibits the Legislature from releasing or extinguishing "in whole or in part, the indebtedness,liability or obllgatio; of any corporation or lndlvidual, to this State . . . . - 158 - . %,on?rableRobert S. Calvert, Page 11 (M-34) concluded that they were not violated, because he found a conslderatlonmoving from the taxpayer to the State for the release of or reduction In a tax already accrued. Mr. Justice Hughes thought that the State would receive far greater bene- fit from the commitment to use within this State (condltloned upon exemption of the devise and bequest) than from collect- ing the tax. Article 14.28 could not possibly be construed as pur- porting to cancel the tax llabllity for a considerationto be furnished by the taxpayer to the State for the release or deduction of taxes already accrued. It Is obvious that Section 2 of Article 14.28 was not intended to provide for a tax remission (or even a tax exemp- tion) as a @d pro quo for the performance of some act (such as committing property to use within the State as in Norris). By its express terms, it is intended to broaden its effect so as to make a gift to a selected group of taxpayers. There 1s a vast difference between a remission of tax liabilities which have already accrued and which the Legis- lature Is prevented from releasing under the plain terms of Sections 51 and 55 and a tax exemptlon which, if valid in other respects, may foreclose the accrual of future tax liabilities. In State v. City of Austin, and State v. City of Dallas, 'n 737 (1?oO), Mr. Justice Walker, speak- 160 Tex. 3tit;3'2 S W *. ing for a un&&ous*co%: said at page 7k2: "After the occurrence of events which under the law then existing give rise to an obligation on the part of an individual or corporation to the state, the Legislature has no power to release or diminish that obligation without consideration. Fmplre Gas & Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 265. See also Delta County v. Blackburn, 100 Tex. 51, 93 S.W. 419. More- over, the use of public money to pay a claim predicated on facts which generate no state liability constitutes a gift or donation in violation of our Constitution. See Thompklns v. Williams, Tex.Com.App.,52 S.W.2d 79. - 159 - hpx+rable Robert S. Calvert, Page 12 (M-34) Respondents could not, therefore,be reimbursed for all or anv part of the expense Incurred by them-in relocating their lines House Bill 1 effective. 11 . . . The purpose of this section [Artike'IiI Section 511 and of Article XVI, Section'6, of the Constitution 1s to prevent the application of public funds to private purposes; in other words, to pre- vent the gratuitous grant of such funds to any Individual or-corporationwhatsoever. See Byrd v. City of Dallas, 11.8Tex. 28, 6 s.w.25.738. . . ." The difference between the Instant case and the Clt of Austin case, su ra is that if Section 2 of Article da is valid, Its onI+- y possible operation Is a retrospectiveone. Other cases distinguishingbetween the prohibited gratuity and a grant or donation in furtherance of a public. governmentalor-state purpose are Road Dist. No. 4 Shelby * County v. Allred, 123 Tex. 77, 68 ?TW 2d 1'" kransas Pass v. Keeling 121 Tex. 339' 247': 1ty 0 Beaumont v. Prihdie, 65 S.W.2; 434, A 1933). Jefferson County v. Board of County and District I%btednek, 143 Tex. 99, lur S.W.2d 90" 4 (-iwiJ. Prior to the effective date of Article 14.28, there was an unconditionalaccrual of inheritance taxes in this case. Thedebtedness, llabllity or obligation" as used In Section 55 mean an accrued indebtedness,a fixed lia- bility or obligation which is due and owing to the State at the time the Legislaturepurports to extinguish it. Cf. State v. City of Austin, supra. This provision of the Constitution is inapplicable whenever the "indebtedness,llablllty or obll- gatlon" has not accrued or 1s in any way conditional-orcon- tingent. See State v. Pioneer 011 and Refining Company, 292 -160- konprable Robert S. Calvert, Page 13 (M-34) S.W. 863 (Tex.Comm.App 1927); State v. Tidewater Associated 159 S.ti.Zd192 (Tex.Clv.App.1942 error ref.1; v. Texas Employment Commission, &2 Tex. 607, 263 s.w.2d 140, 144 (1953). Courts In other jurisdictionshaving similar consti- tutional provisions to the Texas ones under consideration have recognized that when the right to a succession tax becomes vested In the State, the Legislature cannot, either by repeal of the law under which the right vested or by any other means, grant or donate lt to the successor in estate or any other person. In re Powen's Estate, 94 P. 1053 (Cal. Sup. 1908); Riley v. Howar r+ 1924). In re Voorhees' Estate, 195 A 3:; i",~e~,g~~:v~-~~;~~'.f N J' m ftld 3 A 2d 091 (N.J.Sup Ct ) aff'd 10 A 2d 651 (6t:'of &or, and'bppeals). Re Clark' 74 P 24 401 iMont.Sup.1537); Re Skinker, 303 P.2d ~pF(TZfs~p. i956). You are therefore advised that the retroactive provision of Section 2 of Article 14.2e is unconstitutionalfor all the foregoing reasons. Therefore no exemption from inheritance taxes can be allowed under Its unconstitutionalprovision. SUMMARY Article 14.26, V.C.S., exempts from Inheritance taxes "money on deposit in any bank doing business in Texas or to shares or share accounts in any sav- ings and loan association doing business in Texas owned by non-residentsof Texas who are citizens of a foreign country and who are not engaged in business in Texas, or owned by non-resident citi- zens of the United States who reside in a foreign country and who are not engaged in business In Texas. Section 2 of this Article makes the follow- ing statement: "The provisions of this Act shall apply in respect to a decedent dying before the effective date of this Act if the tax imposed by Chapter 14 of Title 122A, Taxation-General,Vernon's Texas Civil Statutes, has not been pai; prior to the effective date of this Act . That por- tion of Section 2, next above quoted,'is unconsti- tutional In that it violates Sections jl and 55 of - 161 - . . .I k,onvrableRobert S. Calvert, Page 14 (M-34) Article III of the Texas Constitutionby attempting to extinguish a liability which accrued to the State of Texas at the date of the decedent's death. Ye very truly, -cR+WFCRDC. MARTIN A orney General of Texas IF Prepared by Marietta McGregor Payne Assistant Attorney General MMP/fb APPROVED: OPINION COMMITTEE Hawthorne Phillips, C2xi:rman W. V. Geppert, Co-Chairman Arthur Sandlln Jack Goodman Pat Bailey Niel Williams STAFF LEGAL ASSISTANT A. J. Carubbi, Jr. - 162 -