Untitled Texas Attorney General Opinion

. , 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.