Title: In Re Dilse

State: north-dakota

Issuer: North Dakota Supreme Court

Document:

219 N.W.2d 195 (1974) In the Matter of Clarence E. DILSE (also sometimes known as C. E. Dilse), Deceased. Ann Herr DILSE, Petitioner-Appellee, v. Ramona Ann Dilse LEER, formerly Ramona Ann Dilse, et al., Respondents, Byron L. Dorgan, North Dakota State Tax Commissioner, Appellant. Civ. No. 8985. Supreme Court of North Dakota. June 4, 1974. *197 B. Timothy Durick and Kenneth M. Jakes, Sp. Asst. Attys. Gen., for the State Tax Commissioner, Bismarck, for North Dakota State Tax Dept., appellant. Mackoff, Kellogg, Kirby & Kloster, P. C., Dickinson, for appellee. ERICKSTAD, Chief Justice. This is an appeal taken from the order of District Judge Emil A. Giese, Sixth Judicial District, Bowman County, dated October 29, 1973. That order reversed an order of the Bowman County Court assessing North Dakota estate taxes in the estate of Clarence E. Dilse and directed the County Court to enter a new order assessing estate taxes in an amount some $16,856.83 less than what the Tax Commissioner claimed was owed. There is no dispute as to the facts. The sole issue for decision is whether the district court properly computed the deduction for the marital exemption in determining North Dakota estate taxes pursuant to Section 57-37-11, N.D.C.C., at the time of decedent's death on February 28, 1969. The county court approved the method of computation of the Tax Commissioner and the district court approved the method of computation of the executors. We resolve the matter in favor of the Tax Commissioner. The pertinent provisions of the tax law in existence at the time of Mr. Dilse's death follow: * * * * * * * * * * * * * * * * * * Section 57-37-11(2)(h) was amended in 1971 by a deletion of the reference to Subsection 10. Contrary to the urging of the executors, we cannot infer from this action in 1971 the intent of the Legislature in enacting Subsection 10 in 1951. In light of the lapse of time between the initial adoption of the statute under consideration in 1951 and its subsequent amendment twenty years later in 1971, applying the New York test, we are of the opinion that the 1971 amendment did not constitute construction of the statute as originally passed. The Tax Commissioner urged that Section 57-37-11(2)(h), as it read at the time of decedent's death, required Federal estate taxes to be deducted from the gross value of the estate along with other deductions such as debts, funeral expenses, executor's commissions, attorney fees and costs of administration, in arriving at the adjusted gross estate, and that the deduction for the marital exemption be then determined by halving the adjusted gross estate. The executors urge that the Federal estate taxes should not have been deducted from the gross value of the estate in determining the adjusted gross estate. The executors would deduct the Federal estate taxes only after the deduction for the marital exemption has been taken. This approach would result in a larger marital exemption and accordingly less estate tax being due to the State of North Dakota. For a better understanding of the two methods of computing the taxes, we borrow from the Tax Commissioner's brief the two methods. The trial court's view of Section 57-37-11(2)(h), N.D.C.C., follows: In the instant case, the spouse's share is limited by decedent's Will to the marital deduction which passes free of Federal tax. No Federal estate tax was paid on the property passing to decedent's spouse. The Federal estate tax was paid out of the residue of the estate. The district court's interpretation of Subsection 10 results in two meanings being given to it depending upon whether we are concerned with determining the marital exemption or are computing the North Dakota estate tax. When applied to the former, Subsection 10 means "federal estate taxes paid and not refunded on the property passing to decedent's spouse", in this case zero. When applied to the latter, Subsection 10 means "federal estate taxes paid and not refunded", in this case in excess of $240,000. Such a bi-level construction of the statute results in the maximum benefit to the taxpayer, since it maximizes exemptions and decreases taxes. Did the Legislature intend Subsection 10 to have such a two-fold meaning when it included it in Section 57-37-11(2)(h), N.D.C.C.? In their brief and during argument, the executors stressed the purpose of the estate tax marital exemption as originally incorporated into Federal law in 1948. The acknowledged purpose of the exemption in Federal law was to correct the inequities between the common-law States and the community-property States. The Tax Commissioner does not dispute the idea that the North Dakota Legislature may have adopted the marital exemption in order to provide benefits similar to the Federal benefits. He asserts, however, that the State law was never intended to be exactly the same, nor has it been applied in that way. The Commissioner points out that there have always been differences between the State and Federal law in the manner in which the adjusted gross estate is computed, even though the common underlying policy of both the State and Federal law was to allow a deduction for a certain amount of property passing to the surviving spouse. Although the State and Federal laws have similar basic objectives, the Tax Commissioner argues that it is incorrect to conclude that because the Federal estate tax law intended a particular result the North Dakota law must also have intended the same result. It is the position of the Tax Commissioner that this matter falls within the prerogative of the Legislature and presents only a narrow question of statutory interpretation of State law. We agree. See State Tax Commissioner v. Tuchscherer, 130 N.W.2d 608 (N.D.1964), an estate tax case wherein we held the *200 Legislature has the power to classify property for estate tax purposes. Stern v. Gray, 72 N.D. 134, 5 N.W.2d 299 (1942), was an action against the State Tax Commissioner in which the court was attempting to determine if losses incurred by the taxpayer in the sale of securities were incurred in connection with the sale or exchange of capital assets. In seeking to define capital assets, the Tax Commissioner urged the court to adopt the Federal definition of capital assets. The taxpayer responded in argument that if the North Dakota Legislature had intended to adopt the Federal definition, it would have included it in the statute. The court held that tax statutes are to be construed strictly against the Government and in favor of the citizen, but refused to arbitrarily adopt either argument without further research into the legislative intent. In the instant case, for reasons we shall state later, we need not look beyond the clear and unambiguous terms of the statute. In light of the statutory rules of construction, we are not at liberty in this case to construe the statute strictly against the Government and in favor of the taxpayer. The applicable statutory rules of construction follow: As we said in State Tax Commissioner v. Tuchscherer, supra, the practical construction by the Tax Commissioner of a doubtful statute is entitled to some weight in construing the statute. The instant appeal presents a stronger case for applying the Tax Commissioner's method in arriving at our decision than Tuchscherer did, because the statute under consideration here is clear and unambiguous, and the Tax Commissioner's method does not contradict the terms of the statute. Since Subsection 2(a) of Section 57-37-11, N.D. C.C., specifically refers to the limitation provided in Subdivision (h) and that subdivision requires that the adjusted gross estate be computed by subtracting from the entire value of the gross estate the aggregate amount of all deductions allowed by certain subsections, and Subsection 10, relating to Federal estate taxes paid and not refunded is to be included in the aggregate to be subtracted, no other method of computing the adjusted gross estate is permissible. The executors also argue that the Tax Commissioner's method of computation violates the provisions of Chapter 30-21.1, N.D.C.C., known as the Uniform Estate Tax Apportionment Act. The Tax Commissioner argues that the Apportionment Act is inapplicable to the instant *201 case, because the decedent's Will provided for the payment of the estate taxes from the residue of the estate and does not therefore involve apportionment. The Uniform Estate Tax Apportionment Act, Section 30-21.1-03, N.D.C.C., was intended to apportion the tax among all persons interested in the estate only if the Will did not otherwise provide. In the instant case Federal estate taxes based upon the Federal taxable estate were directed to be paid and were paid by the residuary estate. Also, in the instant case North Dakota estate taxes based upon the North Dakota taxable estate were paid by the residuary estate. The method of computing the different taxable estates for Federal and State purposes is the essence of the problem in the instant case, not the proration of the taxes. The North Dakota statute in effect at the time of decedent's death required a certain method of computation, as urged by the Tax Commissioner. The order of the district court is reversed and the case is remanded with instructions that the North Dakota estate tax be recomputed consistent with this opinion. VOGEL, TEIGEN, PAULSON and KNUDSON, JJ., concur.