. ,
Honorable Robert S. Calvert Opinion No, WW-1141
Comptroller of Public Accounts
Capitol Station Re: Exemption from inheritance
Austin, Texas tax of devise to an Okla-
homa charitable trust
Dear Mr. Calvert: under submitted facts.
You have requested that we advise you as to whether a de-
vise to an Oklahoma charitable trust is exempt from an inheritance
tax by virtue of that portion of Article 14.06, 20-A, Tax.-Gen.,
Vernon’s Annotated Texas Statutes, which reads as follows:
“Provided, further, that if the
property so passing is to or for the
use of a religious, educational, or
charitable organization which con-
ducts its operations on a regional
basis, one such region of which in-
cludes the State of Texas, or any
part thereof, then a bequest, devise
or gift to be used within such re-
gion shall be deemed to be used
within this state.
“For purposes of this paragraph
a region shall comurise not more
than flve contiguous states, either
in whole or in part, one of which
is the State of Texas.
“For purposes of this paragraph,
a religious, educational, or chari-
table organization shall Include,
but not be limited to, a youth pro-
gram of physical fitness, character
development, and citizenship train-
ing or like program.”
In connection with your request you have advised us of
the following facts. Charles Mortbn Share,,hereinafter.:referred
to as the decedent, died June 13, 1959, a resident of Woods County,
Oklahoma. By the residuary clause of his will, the decedent de-
vised Texas real property, valued at $596,361.00,to the “Charles
. .
Honorable Robert S. Calvert, Page 2 Opinion No. WW-1141
Morton Share Trust."
Prior to his death, the decedent had created this chari-
table trust in the State of Oklahoma. The trust purposes, as
stated in the Trust Agreement, are for general charitable pur-
poses. The Trust Agreement does not contain any geographical
limitations on the expenditure of the trust funds; nor does it
prescribe any particular method of geographical operation. On
the other hand, there is no limitation in the Trust Agreement
which would prevent the Trustees from conducting their operations
on a regional basis. Indeed, in addition to their general powers,
the Trustees are specifically authorized to engage or employ any
persons they may desire to engage or employ for the performance
of any services to the Trust, including an Executive Director.
The Trustees are also expressly authorized to erect such buildings
as they may deem advisable on real property in any location.
Further, ~the Trustees are authorized to execute all instruments
necessary or proper for the accomplishment of the purposes of
the Trust. The Trust Agreement does contain the following pro-
vision in Section 2 of Article VI:
"This agreement is executed and
delivered in the State of Oklahoma;
the aitus shall be in that State;
and it shall be governed by, and
construed and administered in ac-
cordance with the laws of that
State."
The Board of Trustees is required to file annual reports
'in the District Court of Woods County, Oklahoma and furnish copies
of said reports to the Attorney General of 'the State of Oklahoma.
The Board of Trustees have agreed to execute a Resolution
for the purpose of complying with the provisions of Article 14.06 ;a
above quoted and obtaining an exemption from an inheritance tax. 'C,;,
Specifically then, the question which you have submitted to us
is whether the Resolution, if executed* will effectuate exemption ;
from an inheritance tax, The Resolution reads as follows:
"RESOLUTION OF THE BOARD OF TRUSTTES OF THE
CHARLES MORTON SHARE TRUST ADOPTED AT
SPECIAL MEETING HELD AUGUST -, 1961
"WHEREAS, Charles Morton Share died tes-
tate on 3une 13, 1959, and was a resident
of the City of Alva, County of Woods, State
of Oklahoma, at the time of his death and
owned property situated within the State of
Honorable Robert S. Calvert, Page 3 Opinion No. WW-1141
Oklahoma and the State of Texas and
other states; and
“WHEREAS, the Charles Morton Share
Trust is the principal beneficiary of
the estate of Charles Morton Share, de-
ceased, under his last will and testament,
and is the devisee and legatee of all
property owned by the deceased stiuated
in the State of Texas, together with
other property situated in other states;
and
“WHEREAS, the last will and testament
of Charles Morton Share, deceased, has
been duly probated in Cause No. 3569 in
the County Court of Woods County, Okla-
homa, the decree of distribution having
been entered by said Court on June 27,
1961, and said decree of distribution
being now a final order; and
“WHEREAS, the property of the estate
situated within the State of Texas is
now subject to temporary administration
proceedings in the County Court of
Ochiltree County, Texas, Cause No. 793,
and has a value of approximately Six
Hundred Thousand Dollars ($~oo$oo.oo);
and
“WHEREAS, the said Charles Morton
Share Trust is an organization estab-
lished by the said Charles Morton Share
solely for charitable purposes, as evi-
denced by a certain trust indenture dated
June 12, 1959, and hereinafter referred
to as the ‘Trust’ and the Board of Trustees
of which is -hereinafter referred to as
the ‘Board’; and
“WHEREAS, said Texas property consti-
tutes a substantial portion of the estate
of Charles Morton Share, deceased, and
has received and will continue to receive
the protection of the laws and government
of the State of Texas and the Board there-
fore recognizes a moral obligation to ex-
pend and use said income exclusively with-
in a geographical area including the Stated
..
Honorable Robert S. Calvert, Page 4 Opinion No. NW-1141
of Texas to the end that said expendi-
tures will effect a substantial benefit
to the people of Texas; and
“WHEREAS, In order to act upon Its
desire to expend the Income from the
Texas property within a geographical
area Including the State of Texas and
for the additional~purpose of availing
Itself of a legal exemption from pay-
ment of Inheritance taxes to the State
of Texas under the provisions of Arti-
cle 14.06, Title 122-A, Revised Civil
Statutes of Texas, said Board at a
special meeting held December 28, 1960,
adopted a resolutation whereby it ir-
revocably committed funds accruing to
the Trust from the Texas property for
charitable use and expenditure within
the geographical boundariea of a region
composed of the States of Texas and
Oklahoma and bound itself to keep books
and records separately accounting for
the income derived from said Texas pro-
perty; and
“WHEREAS, administration of the Texas
property in Cause No. 793 in the County
Court of Ochiltree County, Texas, will
be closed as soon as practicable after
determination of the inheritance tax
liability, if any, of the estate of
Charles Morton Share, deceased, to the
State of Texas, and whereas, on termin-
ation of said administration proceedings
the Texas property shall be transferred
to the Board and operations of the
charitable trust will then begin on a
regional basis within the region com-
prised of the States of Texas and
Oklahoma; and
“WHEREAS, prior to the determination
of the applicabillty~of the provisions
of said Article 14.06, above referred
to, the appropriate officials of the
State of Texas have requested of the
Board certain assurances with respect
to its manner of operation of said
.
Honorable Robert S. Calvert, Page 5 Opinion No. WW-1141
trust on a regional basis 60 as to
enable said officials to accurately
determine whether said estate of
Charles Morton Share, deceased, is
in fact exempt from the inheritance
tax of the State of Texas; and
“WHEREAS, the Board desires to
make said assurances to said offi-
cials of the State of Texas,
“NOW, THEREFORE, IT IS HEREBY RESOLVED:
“That not less than Five Thousand
Dollars ($5,000.00) in any one fls-
cal year during the period of ten
fiscal years immediately following
the commencement of regional opera-
tions nor in the aggregate not less
than One Hundred Thousand Dollars
($lOO,OOO.OO) during such period
shall be expended and disbursed by
the Board for charitable purposes
within the geographical limits of
the State of Texas; and
“BE IT FURTHER RESOLVED that for
the purpose of providing a convenient
method for the appropriate authorities
of the State of Texas to ascertain
whether compliance with this Irrevocable
commitment Is in fact being made, a
copy of each of the annual reports
required to be filed -inthe District
Court of Woods County, Oklahoma,
under the provisions of Article V
of said trust agreement, shall be
sent by certified or registered
United States mall to the Attorney
General of the State of Texas,
,,,,,
,, ,,.
,,~.4
.nithln.five (5) days after the date
on which each such report shall be
filed in the District Court of
Woods County, Oklahoma; and
“BE IT FURTHER RESOLVED that as
soon as practicable after the com-
mencement of regional operations the
Board shall designate one or more
persons, residents of Texas, as Its
Honorable Robent S. Calvert, Page 6 Opinion No. WW-1141
agent or agents for the purpose
of according and facilitating
contact with the Board) screening
applications for benefits, making
recommendations, and locally facili-
tating the disbursement of funds
to charitable institutions and
facilities located within the
State of Texas; and
“BE IT FURTHER RESOLVED that
jurisdiction of said Trust and
its Board and venue for trial of
any action at law or suit in equity
which may be brought by the State
of Texas through its Attorney
General or other appropriate offi-
cial for any alleged violation of
the letter or spirit of this resolu-
tion shall lie, and by agreement is
hereby vested, in any court of com-
petent jurisdiction situated with-
in the boundaries of Travis County,
Texas; and
“BE IT FURTHER RESOLVED that no
donation or contribution in any
form whatever shall be made to any
charitable institution or facility
nor shall any charitable facility
be erected from funds created by
the Texas properties which excludes
from its benefits, bounty or opera-
tion residents or citizens of the
State of Texas because of such
residency or citizenship.
“BE IT FURTHER RESOLVED that
the appropriate officials of the
State of Texas and particularly
its Attorney General and Comp-
troller shall and may rely upon
the truth in fact of all recita-
tions of fact hereinabove set
forth; and
“BE IT FURTHER RESOLVED that
all terms of this resolution shall
remain forever irrevocable; and
. .
Honorable Robert S. Calvert, Page 7 Opinion No. WW-1141
“BE IT FURTHER RESOLVED that
copies of the Trust Agreement dated
June 12, 1959, the Resolution of
the Board of Trustees adopted on
December 28, 1960, and of this
Resolution, all duly certified as
authentic copies, shall forthwith
be furnished to the Attorney General
of the State of Texas.”
At the outset, we are faced with the question of whether
a charitable organization must be operating on a regional basis
at the date of the decedent’s death In order to be entitled to
exemption. Since in that portion of Article 14.06l which imme-
diately precedes the provisions we are here considering, exemp-
tion is allowed where there is an irrevocable commitment for
use exclusively within this State subsequent to the date of de-
cedent’s death and prior to the payment of the tax, we have con-
cluded that it would be inconsistent with the spirit of the sta-
tute to require that the charitable beneficiary be operating on
a regional basis at the date of the decedent’s death if regional
operations are effectuated prior to the payment of the tax.
The second question is whether the proposed Resolution
and the plan of operations set forth therein constitutes “opera-
tions on a regional basis” within the meaning of the statute.
We think that the Legislative history of Article 14.06, formerly~
Article 7122, v.c.s., is pertPnent to a determination of this
question. Prior to its amendment in 1955, Article 7122 had pro-
vided an exemption for property passing “to or for the use of
any religious, educatlonal or charitable organization when such
bequest, devise or gift is to be used within this State.”
This provision had been construed by our courts as re-
quiring the limitation to use within this State to be expressed
in the will, even though the charitable beneficiary Irrevocably
committed the devise and bequest to use within this State sub-
seuuentto the death’of the decedent and prior to the payment
of -the tax. Presbyterian Church In the U; S. v. Sheppard, 198
S.W.2d 282, (Tex.Civ.App., 1946, error ref., n.r.e.).
In 1955, Article 7l2'Z was amended by providing, in effect,
that property passing to religious, educational or charitable
organizations could gain exemption from Inheritance taxes, even
though the instrument effectuating transfer did not require that
This portion of the statute is more fully discussed hereafter.
. .
Honorable Robert S. Calvert, Page 8 Opinion No. WW-1141
the charitable gift be used within this State, by irrevocably
committing such gift to use2within this State prior to the pay-
ment of inheritance taxes.
The decision in the Presbyterian Church case, supra, was .:
based on the proposition that the tax accrued as of the date of ;
death of the decedent and that therefore any subsequent limita- Y
tion as to use within this State could not effectuate exemption.
The evident purpose of the 1955 amendment was to allow exemption
for charitable devises, bequests and gifts if this State will
receive benefit therefrom, even though the instrument effectuating
the transfer did not itself require that the charitable devise,
bequest or gift be used within the State. Mr. Justice Norvell
recognized the “benefits” doctrine as the basis for exemption
under our statute even prior to the 1955 amendment. In G.A.C.
Halff Foundation v. Calvert, 281 S.W.2d 178 (Tex.Civ.App. 1955,
error ref., n.r.e.), he stated at page 181:
.The Legislature has thus
decided that the greater good may
be served by exempting certain pro-
perty from taxation, considering
the use to which it is dedicated.
A use of property which alleviates
a burden which the State or Its
political subdivisions would other-
wise necessarily bear at public ex-
pense, or a use thereof which f’ul:
fills or accomplishes the generally
accepted charitable objectives of
the people of the State, Is recog-
nized as a proper subject of tax
exemption by specific legislative
enactments. . a ,‘I
In 1959, the 56th Legislature further enlarged charitable
exemptions by extending the geographical limitations on use and
thereby departed from the former concept that exemption would be
accorded char&table devises, bequests and gifts only if their
,;~p~.w limited to this State. Some remnants of the doctrine of
benefits remain since the State of Texas must constitute a part
of the region which is the recipient of the charitable bequest,
devise or gift. The Legislature did not see fit to provide any
yardstick for measuring the amount of benefits which this State
should receive from the charitable organization operating on a
regional basis; yet it is evident that the Legislature did not
2 Senate Bill 266, Acts 1955, 54th Leg., Chapter 389, p. 1032.
.,
Honorable Robert,S. C’alvert,Page 9 Opinion No. WW-1141
intend to accord an exemption for all charitable bequests, de-
vises or gifts since this regional exemption provision Is limited
to regions of not more than five contiguous states, either in
whole or in part, one of which is the State of Texas, Therefore,
necessarily the statute contemplates that this State receive some
benefit before exemption will be allowed. Since we have no fixed
legislative standard to use as a guide, we are of the opinion
that each particular case must rest upon its own facts, and that
if the facts show that this State will receive substantial benefit
as a result of the regional operations of the charitable organl-
zation, exemption should be accorded. We turn, therefore, to an
examination of the benefits which will flow to this State if the
proposed Resolution is adopted.
The Resolution recites that the Texas property has a
value of approximately $~OO,OOO.OO. You have advised us that
if exemption is,not allowed, ~the Trust will owe an inheritance
tax in an amount of approximately $71,000.00.
The specific benefits guaranteed by the resolution are
the following:
(1) “. . .the Board recognizes
a moral obligation to expend and
use said income [from the Texas
property_7 exclusively within a
geographical area including the
State of Texas to the end that
said expenditures will effect a
substantial benefit to the people
of Texas; . . .‘I
(2) The Board has irrevocably
committed funds accruing from the
Texas property for charitable use
and expenditure within the geo-
graphical boundaries of a region
composed of the State of Texas
and Oklahoma and has further bound
itself to keep books and records
separately accounting for the ln-
come derived from the Texas pro-
perty .
(3) The Board ;as obligated
itself to expend . . .not less
than Five Thousand Dollars. . .
in any one fiscal year during
the period of ten fiscal years
immediately following the
~ Honorable Robert S. Calvert, Page 10 Opinion No. WW-1141
commencement of regional opera-
tions nor in the aggregate not
less than One Hundred Thousand
Dollars. . .during such period. . .‘I
within the State of Texas.
(4) The Board has guaranteed
that no charitable facility will
be erected from funds created by
the Texas properties nor Will any
donation or contribution be made
from such funds to any charity
which excludes from its benefits
resident6 of the State of Texas
because of such residency.”
Under the terms of the resolution, the Board plans to
commence regional operations by designating “one or more per-
sons, residents of Texas, as its agent or agents for the pur- ..
pose of according and facilitating contact with the Board,
screening applications for benefits, making recommendations, and
locally facilitating the disbursement of funds to charitable lnsti-
tutions and facilities located within the State of Texas; . . .’
As a further evidence of the Board’s good faith in exe-
cuting the Resolution in question, the Board has agreed to fur-
nish to the Attorney General of the State of Texas a copy of each
of the annual reports which the Trust Is required under the pro-
visions of the Trust Agreement to file in the District Court of
Woods County, Oklahoma. The Board further agrees that shouId any
suit be brought by the State of Texas for any,,vlolationof the
letter or spirit of the proposed Resolution, . . .jurisdiction
of said Trust and its Board and venue. . .of any action . . .shall
lie... .ln any court of competent jurisdiction. . .” In Travis
County, Texas. The terms of the Resolution are declared to be
irrevocable.
In view of these guarantees, we can only conclude that the
State of Texas will receive substantial benefit from the regional
operations of the Trust.
Although the Board in the Resolution adopted in December,~
1960, has created three other regions in addition to the region
consisting of Texas and Oklahoma, no evidence of the Trustla
operations within these regions has been submltted to us; and
we will therefore consider whether regional operations within
the single region of Oklahoma and Texas satisfy the requirements
of the statute. The statute refers to a charitable organization
“which conducts its operations on a regional basis, one such re-
gion of which .includes the State’:ofTexas, or any.part?thereof. . .‘I
Honorable Robert S. Calvert, Page 11 Opinion No. WW-1141
Although national organizations operating on a regional basis are
clearly within this provision, we do not regard the last quoted
portion of the statute as requiring the existence of more than
one region as a requisite to coming within statutory meaning of
“operations on a regional basis”. Here again, the guide to the
interpretation of the statute should be the teat of benefits to
this State; and If the phrase “one such region of which includes
the State of Texas, or.,anypart thereof, . . .” be Interpreted
as requiring the existence of a national organization divided ln-
to’regions, or even an organization not national in scope but
conducting operations In more than one region, the “benefits”
test becomes meaningless. It can make no differenae whether there
is more than one region since no benefits would accrue to the
State by virtue of the existence of other regions.
SUMMARY
A charitable organization need not be operating
on a regional basis at the date of the decedent’s
death in order to gain exemption from an inheritance
tax under Article 14.06, 20-A, Tax. -Gen., V.A.T.S.,
if bona fide regional operations are commenced prior
to the payment of the tax. Operations on a single
regional basis satisfy the requirements of the sta-
tute If the region Includes the State of Texas, or
any part thereof, and is comprised of not more than
five contiguous states.
Yours very truly,
WILL WILSON
Attorney General of Texas
MMcGP:jp
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
Henry Braswell
Riley Eugene Fletcher
John Reeves
T. B. Wright
REVIEWED FOR THE ATTORNEY GENERAL
By: Houghton Brownlee, Jr.