Iknorable Robert S. Calvert Opinion No. (C-4-03)
Comptroller’of Public Accounts
Austin, Texas Re: Whether, under submitted
facts, the corpus of two
,trusts are subject to
Inheritance Taxes under
Chapters~ 14 and 15,
Volume 20A, Vernon's
Dear Mr. Calvert: Civil Statutes.
In connection with your request for an opinion of ‘this
office on then above captioned matter, we have been :advised
of the following facts.
:;.
William C. Springer, a resident of Pinehurst, Montgomery
County, Texas, died on July 3, 1964, at whlc~h time he was less
than three years' of age. The decedent was a beneficiary of two
trusts, the “William C. Springer 1962 Trust” and the “Wllllam
C. Springer 1963 Trust". These Trusts were created by the
decedent's great-grandmother. The terms oft the two Trusts are
Identical. The corpus of the 1962 Trust had a value of approx-
1 imately $88,000.00 at the date of the decendent’s death, and
the corpus of the 1963 Trust was worth approximately $102,500.00
on that date. The pertinent portions of~paragraphs Two of both
Trust Agreements are the following:
*.. : .,
\ " 'If the beneficiar dies before attain-
ing twenty-one (21 T years of age, upon ,,
the beneficiaryIs death, such Trust
shall terminate and such Trust Estate
shall be distributed to such one or-
more persons and corporations in such
shares, manner, and proportions as
the beneficiary may'appoint by ri.11.
Any portion of such Trust Estate not
effectively appointed shall be dls-
tributed upon the beneficiary's death
to the issue of the beneficiary, btit
if none of the beneficiary's issue is
then living, to the issue of the parent
of the beneficiary, which parent was
one of Trustor's issue. . . ."
-1903-
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Honorable Robert S. Calvert, Page 2 Opinion No. (C-403)
Both Paragraphs Four of the Trust Agreements provide that
if any portion of the Trust Estates which, in default of
appointment upon the termination of the Trusts, would be dis-
tributed to a person who has not attained twenty-one years of
age, such portion would be retained by the Trustee, in trust,
as a Trust Estate of a separate and distinct Trust for such
person until such person attains the age of twenty-one years
at which time the Trust shall terminate and distribution of
the corpus shall be made to the person entitled thereto.
The decedent having died intestate and without issue,
proportionate distributions have been made to Trusts for the
decedent’s brothers and sister. The attorneys for the estate
have submitted a Brief In support of their position that no
death taxes have ~accrued under either Chapter 14 or. Chapter
15 of Title 122A, Taxation-General, Vernon’s Civil Statutes.
We agree that no inheritance taxes accrued under the provisions
of Article 14.01 which enumerates the transfers which are sub-
ject to State Inheritance taxes. As pointed out :in Calvert v.
Fort Worth National Bank, 163, Tex. 405, 356 S.W.2d.918, 921
‘(1962) :
!‘When the’Legislature intended to
tax the succe~sslon to property
other than that owned by the ~decedent
at the time of his death, such inten-.
tion is plainly and unequivocably
/ stated. ” ,~ .’
_- the decedent but subject, upon passing,
f~~~“K;;;d;~““(“1T property passing under a general power
of appointment exercised by the decedent by will; (2) certain
life-insurance proceeds; (3) transfers made or intended to take
effectin possession or enjoyment after the death of the grantor
or donor and (4) transfers ink contemplation of death. In the
instant case,.the corpus of the Trusts did not pass by any of
the enumerated taxable transfers. :,Therefore no inheritance
taxes are due under the provisions of Chapter 14.
We p~ass now to a consideration of whether any death taxes
are due the State under the provisions of Chapter 15. The
attorneys for the estate have advised us that a Federal Estate
Tax will be due upon the decendent’s estate; but they take the
the position that Inasmuch as no inheritance taxes have accrued
under the provisions of Chapter 14, no tax is due under the
provisions of Chapter 15. In support of this position, they
rely upon Article 15.01 and Article 15.04.
Article 15.01 reads, in part, a,s follows:
-1904-
Honorable Robert S. Calvert, Page 3 Opinion No. (C-403)
n
. an Inheritance
. . and transfer
tax is hereby levied upon the net
Estate of every decedent. . D whose
Estate, or any portion theresf. . .
is made taxable under the Inheritance
Tax Laws of this State."
Article 15.04 reads'as follows:
"Where no inheritance tax is imposed
on an estate, which is situated in
this State, under the laws of this
State, by reason of Its value not
exceeding in value,t.he amount of
exemptions, and an estate tax Is
imposed on such estate by the
Federal Government, then there shall
be, and is hereby levied and shall
be collected from such estate, an
Inheritance or transfer tax sufficient
In amount to equal eighty per cent
(80%) of said tax Imposed by the
Federal Government under the Revenue
Act of 1926,~on that portion of said
estate which is situated in the State
of Texas.
"In computing and determining the
rate of the tax in such cases named '
partition and distribution among the
joint or several owners of same, ano
said tax shall be due and payable and
shall be subject to the same Interest
and penalties for nonpayment, as are
other inheritance taxes under the pro-
visions of the inheritance tax laws of
the State." (Emphasis supplied throughout)
-1905-
.. ,
Honorable Robert S. Calvert, Page 4 Opinion No. (C- 403)
It is true that Chapter 15 is entitled "Additional Inheri-
+,znr,e Tw!' ad. that some of the language used fn Chapter 15 with
reference to "inheritance" taxes is misleadfng in the sense thdt
Chauter 15 is an estate tax rather than an inheritance tax.
Sim‘co v. Shirk, 144 Tex. 259* 206 S.W.2d 221 (1947); Sinnott v. :
Gldna
-- 1:i9x. 366, 322 S.W.2d 507 (1959). Articles 15.01
a nd 12.04 are not entirely inaccurate, however, as they refer
to a transfer" tax which is the essence of an estate tax.
It's subject matter is "the exercise of the legal power of
transmission of property, 0 0n0 Stebbins 286 U.S.
137, 141 (1925). Whereas an Inheritance tax Is levied upon .
"the right to receive as distinguished from the right of-
transfer. 0 0"0 Rethea v. Shenpard, 143 S.W,2d 997 (Tex.Clv.
App. 1940, error ref.)
A brief examination of the history that led to the enact-
ment of Chapter 15 conclusively establishes the nature of the
tax. For a good many years there had been considerable opposi-
tion to the Federal Government's invasion of the death tax
field. Roth the Federal Inheritance Tsxand the 1916 Estate
Tax Act had been attacked unsuccessfully as an invasion of the
Dower of the States to reaulate the transmission of nrouerty
it death. Knowlton v. MO&e, 1'78 U.S. 41 (1900), New York -
v 256 U.S. 345 (1941). In 1924 Congress
enacted the first so-called "credit" nrovision. Rev. Act. of
1924, Sec. 301(b), By the terms of this provision, the tax-
payer was allowed "credit" for State taxes paid on transfers of
pro erty which were within the scope of the Federal law. The
258 allowable credit under this Act was increased to 80% by the
Revenue Act of 1926, Sec. 301(b). This amount of allowable
credit has not been increased by subsequent revisions of the
Federal Estate Tax and is still referred to as a credit against
the basic Federal tax.
The wording of the "credit" provision in the Federal Act
requires that the estate, inheritance, legacy or succession
taxes must have been actually paid to the State'bef'ore the
taxpayer may deduct such amount from the total Federal tax.
Whenever the full amount of the allowable 8G$ is not taken up
by State taxes, the taxpayer's "credit" is reduced accordingly
tith the result, in theory, at least, that he pays the same
amount regardless of the eventual disposition of that amount
between the State and the Federal Government.
After the enactment of the credit provision, most States
passed laws designed to take advantage of the provision. The
Texas Statute, presently embodied in Chapter 15, was first
;yted in 1933. Acts 1933, 43rd Leg., pa 581, Ch. 192, Sec.
. Article 15.01 specifically provides for the levying of the
tax in the following terms:
-X9?6-
Honorable Robert S. Calvert, Page 5 Opinion No. (C-403)
*Said tax shall be, and is, levied
upon the entire net value of the
taxable estate of the decedent
situated and taxable In the State
of Texas, and the tax on each such
estate shall be equal to the
difference between the sum of such
taxes due this State as inheritance
or transfer taxes and eighty per cent
(80%) of the total sum of the estate
and transfer taxes imposed on such
estate by the United States Govern-
ment under the Revenue Act of 1926,
by reason of the property of such
estate which is situated in this
State and taxable under the laws
of this State."
Thus, the amount of the tax is a fixed percentage of an
amount which is determined by the basic Federal Tax; and the
provisions of the Federal law, not the provisions of the Texas
law, determine every step to be takenin computing the total
tax figure.
In State v. Wiess, 141 Tex. 303, 171 S.W 2d 848 (1943),
the court held that the terms "net estate" and "gross estate"
as used in Article 714&a (presently Article 15.01) must be
given the same meaning as they sre given In the Federal Act.
At page 851 of the opinion, the Court said:
*
.Since it is evident on the
fici of our statute that It is
intended to take full advantage
of the Federal Revenue Act of
1926, and is intended to tax all
property in this State, covered
by such Federal Revenue Act, we
must look to the Federal Revenue
Act to ascertain the meaning of
the term 'net estate' as used in
our act. . . ."
In Sinnott v. Gidney, sunra,the court was concerned with
the construction of a will for the purpose of determining,
among other things, whether the burden of payment of estate
taxes fell on the residuary devise. In that case, the estate
situated in Texas did not exceed the exemptions allowed by law
and no basic inheritance tax was payable. The tax assessed
had been assessed and paid under the provisions of Article
714&a, Vernon's Civil Statutes, presently carried in Chapter 15.
-1907-
'Honorable Robert S. Calvert, Page 6' Opinion No. (C-403)
In the course of its determination of the questions under
consideration, the court made the following statement with
regard to Section 4 of Article ,7144a, which is now Article 15.04,
the very Article upon which the taxpayer's attorney relies:
n
. . .Section 4 deals with the
situation in which there is no
basic inheritance tax liabllfty.
Unlike Section 2, it contains no
apportionment provision and simply
requires that the tax be paid out
of the whole of the estate before
partition and distribution. The
tax Imposed by the latter section
Is an additional estate tax. As
between the beneficiaries of the
estate, it is payable out of the
same finds or property as the
federal estate tax unless the
will provides otherwise. See
Simi?o v. Shirk, 146 Tex. 259, 206
S.W;2d 221." (at p. 513).
The underscored portion of the above statements specifically
recognizes that a taxis Imposed even where there Is no basic
tax liability and is not limited to cases in which there is no
liability by reason of exemptions.
~Likewise, in Simco v. Shirk, supra, no basic inheritance
taxes had accrued, however an additional tax had been levied
under the provisions of Article 714&a. The specific question
before the court was whether the full amount of the tax was
due in view of the fact that the taxes already paid to other
States, cou led with the amount of the tax levied under
Article 714fi a would exceed the total allowable 80% credit. In
upholding the tax, the court sald,at page 223,,that Article
7144a was passed by the Legislature "to take advantage of the
80 per cent relinquished by the ~Federal Government."
In Strauss 2% S.W.2d 287 (Tex.civ.App. 1952,
error ref., n.r.e.) , the court was concerned with the follow-
I At the death of a husband, a tax in the amount of
$Y%,g% was levied under the provision of Chapter 5A of
Title 122, V.C.S., presently Chapter 15. At that time, the
Federal Government levied the estate tax against the entire
community estate. The State of Texas had received credit for
80% of the amount of the tax imposed on the entire community
estate under the provisions of the 1926 Federal Estate Tax
Act. Section 813, Title 26, U.S.C.A.
-1908-
Honorable Robert S. Calvert, Page 7 Opinion No. (C-403)
At the death of the wife, who died less than a month after
the husband, a deduction was claimed for the tax previously
paid at the death of the husband. Article 7125, 20 V.C.S.,
lists among permissible deductions the following:
* . .an amount equal to the value
of any property forming a part of
the gross estate situated in the
United States received from an
person who dies'within five (5 7
years prior to the death of the
decedent, this deduction, however,
to be only In the amount of the
value of the property unon which
an Inheritance tax was actually
& and shall not include any legal
exemwtions claimed bv and allowed
the h'eirs or legatees of the estate
of the prior decedent."
The court refused to allow the deduction for the reason
that~ the wife's community Interest had not been received from
the husband at his death and for the further reason that no
inheritance tax had been paid to the State on the receipt of
such interest within the last five years under the provisions
..of Chapter 5..
,,,-. While the Strauss case is not precisely In point since no
protest was made at the husband's death as to the tax levied
under Chapter 5A, nevertheless the case shows an instance in
which the tax was levied not "by reason of . . :the estate’s
value not exceeding In va= the amount of exemptions. e ."
but solely because the allowable 80% credit' based on the net
estate as determined by the Federal Government exceeded any
taxes due under Chapter 5. Moreover the Comptroller has
advised us that he has never made the above quoted excerpt
from Article 15.04 the criterion of tax liability under
Chapter 15. It is, of course, well settled that the consistent
departmental construction of a statute by the official charged
with the administration thereof is entitled to great weight
and will not be departed from unless clearly wrong. 53 Tex.
Jur.26 259-264, Sec. 177.
It is admitted that a Federal Estate Tax will be due upon
the-decedent's estate. This being true, the allowable 80%
credit will necessarily accrue regardless of the fact that no
Inheritance tax accrued under the provisions of Chapter 14.
Only thus can the State take full advantage of the Federal
Revenue Act of 1926 and comply with the directives and general
purpose of Chapter 15. The taxpayer will pay no more because
-1909-
. .. .
Honorable Robert S. Calvert, Page 8 ~~Opinion No. (C-403)
if he does not pay the State the tax in question, he will be
required to pay the same amount to the Federal Government.
SUMMARY
-------
The additional estate tax
levied under the provisions
c&C;~~t;rvl~STitle 122A,,
. . ., accrues
even though no inheritance
taxes have accrued under the
provisions of Chapter 14,
Title 122A, Tax-Gen., V.C.S.
Yours very truly,
WAGGONER CARR
Attorney General'of Texas
HMcQP:dl
APPROVED
BY OPINION COMMITTEE
W. V. Geppert, Chairman
J. Arthur Sandlin
John Reeves
W. 0. Shultz
APPRO'.'RD
FOR THE ATTORNEY
GENERAL
BY: Stanton Stone
-1910-