Wurts v. Commissioner

*1120OPINION.

Milliken:

The sole issue in this case is whether the respondent erred in refusing each petitioner the right to deduct from Ms gross income the amount of Pennsylvania transfer taxes which had been paid during the taxable year by the executor of Richard S. Brock and deducted by him during that year from the share of each petitioner before payment of transfer.

Section 214(a) (3) of the Revenue Act of 1921, with certain exceptions not pertinent to this proceeding, permits an individual for the purpose of ascertaining his net income to deduct from his gross income “ taxes paid or accrued during the taxable year.”

Section 219 provides:

(a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including' — •
(1) Income received by estates of deceased persons during the period of administration or settlement of the estate.

Subdivision (b) of this section in effect provides, with exceptions not material here, that the net income of an estate shall be computed in the same manner as that of an individual. So the question narrows down to whether the transfer taxes paid by the executor of Richard S. Brock are deductible by him from the gross income of *1121the estate or are deductible by the petitioners from whose shares such taxes were deducted by the executor before payment or transfer. This turns on the nature of the Pennsylvania tax and this in turn depends on the construction placed upon the Pennsylvania transfer tax law by the Supreme Court of Pennsylvania. Cf. Keith v. Johnson, 271 U. S. 1. The petitioners refer to certain excerpts from the opinions of the Supreme Court of Pennsylvania in In re Oliver’s Estate, 273 Pa. 400; 117 Atl. 81; In re Kirkpatrick’s Estate, 275 Pa. 271; 119 Atl. 269; and Shugars v. Chamberlain Amusement Enterprises, 284 Pa. 200; 130 Atl. 426, which, without a careful reading, would indicate that the Pennsylvania transfer tax is a tax not upon the estate as a whole but is a tax upon the share of each individual beneficiary.

In In re Frick’s Estate, 277 Pa. 242; 121 Atl. 35, the Supreme Court of Pennsylvania had occasion to pass upon the nature of this tax. After quoting a portion of section 2 and section 10 of the Pennsylvania transfer tax act of June 20, 1919, P. L. 521, sections which were in effect at the date of the death of Ei chard S. Brock, the court said:

It is clear from these sections that the tax is to he levied upon “the clear value” of the entire estate (from which has been excluded, however, real estate located outside of Pennsylvania), after deducting only “the debts of the decedent and the expenses of the administration ” of such estates. The appraisement to be made is not of the legacies or devises, but of the whole estate of a decedent; the debts and expenses of administration are not to be deducted from any particular gift or gifts, but from the whole estate, and the taxes paid to the United Stales or to any other state or territory, if permitted to be deducted, would be from the whole estate. We therefore conclude that it is the entire value of the eslate, less the credits specified, which forms the basis of the tax, and not the amounts received by the particular legatees. Hence, as stated in Knowlton v. Moore, 178 U. S. 41, 20 Sup. Ct. 747, 44 L. Ed. 969, that which the state “ taxes is not the interest to which some [or many a] person succeeds on a death, but the interest which ceased by reason of the death.” Since this is the true construction of the act, much of the argument made by these appellants, founded as it is upon the contention that the tax is levied only upon the particular gifts, when and as received, becomes ineffective because it has no relation to the actual status.
Basing their elaborate argument largely on their erroneous construction of the act as last stated, the executors and residuary legatees who appeal ask us to ignore the clear and unambiguous language of section 2, above quoted, and to decide that the court below erred in “ ascertaining the clear value ” of the estate, because it did not deduct from its “gross value” (a) the amount paid the government for the federal estate tax; (b) the amounts paid other states and the Province of Quebec for their inheritance taxes on decedent’s real and personal property there located; and (c) the inheritance tax payable to this state. Kirkpatrick’s Estate, 275 Pa. 271, 119 Atl. 269, is an express authority against the first of these claims; in principle it also decides the others adversely to these appellants. In deference to the able arguments made, however, the supposedly new points presented will be briefly considered aside from that decision.
*1122In support of their contention upon these points, they urge that refusal to allow these items to be deducted “ adds the federal tax, the tax paid to the other states,” and that paid to this state, to the total valuation to which the tax rate is applied. This is erroneous, however; it simply refuses to allow these sums to be deducted from the “ gross value of such estates ” “ in ascertaining the clear value” thereof, exactly as does the federal estate tax act (U. S. Comp. St. §6338-1/4a et seq.; New Yorh Trust Co. v. Eisner, 266 U. S. 345, 349, 350, 41 Sup. Ct. 506, 65 L. Ed. 963, 16 A. L. R. 660), and many of the inheritance tax laws of other states. No valid reason is given why this may not be done. On the contrary, as stated in the last cited case, where “ the tax attaches to the estate before distribution — if it is a tax on the right to transmit, or on the transmission at its beginning — obviously it attaches to the whole estate except so far as the statute sets a limit.”
Recognizing that their contention now being considered is in direct antagonism to the express language of the statute, these appellants in effect ask us to ignore this language, and from isolated phrases and words in the statute to reach an opposite conclusion, partially because of general expressions found in our opinions in Oliver's Estate, 273 Pa. 400, 117 Atl. 81, and Kirkpatrick’s Estate, 275 Pa. 271, 119 Atl. 269 — though this question was not directly raised in either of them — apparently forgetting the basic rule that—
“ It is a maxim, not to be disregarded, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit, when the very point is presented for decision. The reason of this maxim is obvious. The question actually before the court is investigated with care, and considered in its full extent. Other principles which may serve to illustrate it, are considered in their relation to the case decided, but their possible bearing on all other cases is seldom completely investigated.” Cohens v. Virginia, 6 Wheat. 264, 397 (5 L. Ed. 257), per Marshall, C. J. O’Malley v. O’Malley, 272 Pa. 536, 116 Atl. 500.

The same observations made by the Supreme Court of Pennsylvania relative to its opinions in Oliver's Estate and Kirkpatrick's Estate apply equally to the excerpts made by the petitioners from the opinion in the ¡Shugars case. The Frick case was taken on writ of error to the Supreme Court of the United States (Frick v. Pennsylvania, 268 U. S. 473) and was there reversed on certain points not material to this proceeding. That portion of the decision of the Supreme Court of Pennsylvania, which held constitutional the provisions of the Pennsylvania act which deny deduction from the gross estate of the decedent of estate taxes paid to the United States, was affirmed. Relative to the nature of the Pennsylvania transfer tax the court said:

While the federal tax is called an estate tax and the state tax is called a transfer tax, both are imposed as excises on the transfer of property from a decedent and both take effect at the instant of transfer. Thus both are laid on the same subject, and neither has priority in time over the other.

Again, the court said:

The objection that when no deduction is made on account of the federal tax the state tax becomes to that extent a tax on the federal tax and not a tax on *1123the transfer is answered by what already has been said. Bnt by way of repetition it may bb observed that what the State is taxing is the transfer of particular property, not such property depleted by the federal tax! The two taxes were concurrently imposed and stand on the same plane, save as the United States possibly might have a preferred right of enforcement if the estate were insufficient to pay both.

In Keith v. Johnson, supra, the Supreme Court had before it for application the transfer tax of the State of New York. Following the construction placed on the statute by the New York courts, the court held that an administratrix had the right under the Eevenue Act of 1916 in computing the net income of the estate to deduct the transfer taxes paid to the State of New York. While following the decisions of the New York courts, the Supreme Court stated that it agreed with those courts and concluded its opinions as follows:

And we are of opinion that the transfer tax is deductible. It was primarily payable by the respondent [the administratrix] out of moneys and other property of the estate; and it was so paid by her. While this lessens the amount for distribution among the heirs, it cannot be said that they bore any part of that tax. As well might it be claimed that they paid the funeral expenses and debts, if any, of the intestate. No part of the transfer tax so paid could be taken by the heirs as a deduction in calculating their federal income taxes. It follows that the amount of the transfer tax paid in 1917 by the respondent was deductible in ascertaining the taxable income of the estate received by her in that year.

Under the above authorities it is clear that the transfer taxes paid by the executor of Eichard S. Brock are not deductible by the petitioners from the gross income.

Judgment will he entered for the respondent.