. .
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
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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
$53, Austin, writ ref., Cahn v. Calvert,
159 Tex. 365, 3.21S.W.2d 869.
"These cases illustrate the principle
that in the assessment of death taxes
death of decedent is the critical event.
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Honorable Robert S. Calvert, Page 7 (M-34)
?l!hescheme of our inheritance tax
laws Is stated In Calvert v. Fort Worth
National Hank, 163 Tex. 405, 356 S.W.2d
918, as follows:
"'Historically,death duties "In all
countries rest In the essence upon the
principle that death is the generating
swrce from which the particular taxing
power takes its being, and * * * it is
the power to transmit, or the transmlsslon
from the dead to the living, on wh+ch such
taxes are more Immediatelyrested. See
Knowlton v. Moore, 178 U.S. 41, 20 S.Ct.
747, 44 L.Ed. 969. From a reading of our
inheritance tax statutes, we think the
basic plan and purpose of the Legislature
was to levy the tax upon the privilege
of succeeding to property belonging to a
decedent at the time of his death.
Article 14.01 speaks of property passing
by will or by the laws of descent or dis-
tribution, whether belonging to inhabit-
ants of this State or to persons who are
not inhabitants. The only property that
is ordinarily regarded as passing by
either will or descent is that which was
ovmed by the testator or intestate at
the time of his death.'
"Article 14.15, Vol. 20A, Taxaticn-
General, V.A.T.S., provides, in part that
inheritance taxes 's‘nallbe a lien upon
such property, (see Art. 14.01, id.) from
the death of the decedent until paid.'
"This Article is consistent with the
stated plan of these tax laws In Fort
Worth National Hank, supra, and demon-
strates that the date of decedent's
death is the date from which the rig$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 -