Honorable Robert S. Calvert Opinion No. M-15

Comptrollerof Public Accounts Capitol Station Re: Constltutionallty of Austin, Texas Article 14.0’7(2), Ch. 14, Title 122A, TaxatlonDear Mr. Calvert: General,V.C.S.

Article 14.0'7'(2), Chapter 14, Title 122A, TaxatlonGeneral,Vernonls Civil Statutesreads as follows:

“(2) Resident Decedent. In the event
a resident of this State dies, leaving any estate subject to an Inheritancetax, situated partly within and partly without this State, the Inheritancetax Imposed upon the share of any beneficiaryof said estate situated in Texas shall be a tax which shall bear the same ratio to the amount such tax would be If his entire share and Interestwere situated In Texas, before allowablebeneficiarydeductions, bears to the total value of such beneficiary's share In such decedent’s estate, wherever situated, before allowablebeneficiarydeductions
are made.”

We quote the following excerpt from your letter reopinion of this office on the constitutionality questing the of the above quoted statute.

said "Our Interpretationof the provlslonbof Article Is calculatedas follows:

Gross Estate 'Wherever Situated $115,486.14 Less: Funeral and Administration Fxpenses. Debts of the Decedent,Mortgages and Liens Net Estate Wherever Situated

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Honorable Robert S, Calvert, page 2 (M-15)

Gross Estate Situated In the State of Texas Less: P;;centagedas follows)

. ,'+Bb.14

X $458531.57 - $ 32,806.14

12.935.52

Net Estate Situated In the State of Texas $19,8?‘0.62

, a niece of the decedentJ Inherited
e total net estate.

Net Estate Wherever 

### Situated

Total Texas Inheritance Tax Due If Entire Net Estate Was Situated In the State of Texas $2,447.73
Percentageof Net Estate Situated In the State of Texas

Total Texas Inherlta .2841

m

You state that the attorneys for the estate take the position that the provisionsof Article 14.07(a)are unconstitutional under Section 1 of ArticleVIII of the Texas Constitution. You further state that the attorneysalso refer to a regulation In the Comptroller's

pamphlet (entitled "Inheritance Tax and Federal Estate Credit")at page 20. This regulation states In substance that the State of Texas does not impose an Inheritancetax on real property of a Texas decedent If It is located outside the State. With regard to this regulation, you state that It was correct under the old law but "this regulation is now obsolete and was lnadvertently left In the pamphletwhen House Bill 1182, Acts of the 59th Legislature,

made the changes In our InheritanceTax Law. A new printing of our pamphletwill omit this regulation."

The brief which has been filed by the attorneys for the estate further challengesthe efficacy of Article 14.07(2) on the

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HonorableRobert S. Calvert, page 3 (M-15)

ground that the caption of House Bill 1182 Is defective. Another defect Is alleged as follows:

"Article 14.07(2) Is defective since the applicationof such statute requires the calculationof two unknown factors In a fourfactor equation. Such defect Is apparent when Article 14.07(2) Is comparedwith Article 14.07 (l), the Immediatenext preceding statute. It Is obvious that the phrase 'as the total value of the beneficiary'sshare of the decedent's estate which Is situated In Texas' was left out of Article 14.07(2), and that such phrase must be Inserted Immediatelynext preceding the phrase 'before allowablebeneflclary deductions'before the calculationof any tax Is possible."

Article 14.07(l) reads as follows:
"(1) Non-residentDecedent. The lnherltance tax Imposed upon every beneficiary's share of the estate of a non-residentdecedent shall be a tax which, In amount, bears the same ratio to the entire tax for which the beneflclary's Interestwould be liable If the entire estate were situated In Texas, as the total value of the beneficiary'sshare of the decedent's estate which Is situated In Texas, before allowable beneficiarydeductionsare made, bears to the total value of the beneficiary'sentire share In the estate of the non-residentdecedent wherever situated,before allowablebeneficiarydeductions
are made."

We shall first pass upon the constitutionality of Artlcle 14.07(2). We think that the decision In S.W.2d 593 (1934),a Commissionof Appeals 0 the Supreme Court, disposes of the contentionthat the provisions of Article 14.07(2) are in violation of the provlslons of Section 1 of Article VIII of the Texas Constitution,requlrlng taxation to be equal and uniform. In s, the court held that the provisions for different exemptionsand percentagesor rates In the various classlflcatlon provisionsof the lnherltante tax statuteswere constitutional. The basis of this holding was that Inheritancetaxes are "privilegetaxes"; and that

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since they are a tax on the right of successionand not on the property passing, such classlflcatlon provisionswere valid. Before reaching this conclusion,the court pointed out the fundamentalrule that where a statute Is susceptibleof two constructions,

every possiblepresumptionIn favor of Its constltutlonalltywill be made; and such presumptionswill prevail until the contrary Is shown beyond a reasonabledoubt. The basic principle of this case has been followed In subsequentlnherltante tax cases.

Under the reasoning of this declslon,we think It la clear that the legislaturemay speclflcallyprovide two different classifications for a resident decedent,making the classificationdepend on the location of the property of the decedent, Even though such classlflcatlon results In differentamounts of taxes, It Is no more discriminatorythat the classificationprovisions ba.sed

on relationshipto the decedent.

With regard to dlscrlmlnatlon,the attorneys for the estate made the followingstatementat page 6 of their brief:

"Article14.07(2) Is discriminatory In charactersince a Texas decedent who
owns no real property outside of the State of Texas is taxed at a lower rate than a Texas decedent who owns real property outside of the State of Texas."

We think that the Supreme Court of the United States disposed of this ar ument (1919). t In Maxwell v. Bwbee, 250 U.S. 525

At pages 5 0, 541, the court said:

”
,

. . . They finherltance taxesJ are based upon two principles: 1. An lnherltante tax Is not one on property,but one on the succession. 2. The right to take property by devise or descent la the creature of the law, and not a natural right -a privilege, and therefore the authority which confers It may Impose conditionsupon It. From these principles It 1s deduced that the States may tax the prlvllege, discriminatebetween relatives,and between these and strangers,and grant exemptions;and
are not precluded from this power by the provisions

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HonorableRobert S. Calvert,page 5 (M-15)

of the respective state constitutionsrequlrlng uniformityand equality of taxation.'"

The rule of Immunity from taxationby a state, upon the transfer, on the death of the resident owner, of 'propertyhaving an actual physical location or sltus In another state, does not apply to such a statute as Article 14.07(2). This statute merely uses the entire estate, wherever situated, In determining the rate of tax to be applied to the transfer of propertywithin the state and does not purport to compute the tax with respect to the part within the state on the value of the whole. Consequently, such a statute IS not unconstitutional. 28 Am.Jur. 207, Inheritance,Estate, and Gift Taxes, Sec. 270; Maxwell v. Busbee, supra.

Maxwell also disposes of the due process problem. In Maxwel1,thet.mt held that the fact that a state tax on succession to local property of a non-residentdecedent la measured by the ratio In value of such property to the entire estate, including real and personal property in other states, does not make It a tax on propertybeyond the jurisdlctlonof the state and Is thereforenot violative of the due process clause OS the Fourteenth Amendment, At page 539, the court said:

"It Is not to be disputed that, consistentlywith the Federal Constitution,
a State may not tax propertybeyond Its terrltorlal jurlsdlctlon,but the subjectmatter here regulated is a privilege to succeed to property which Is within the jurisdictionof the State. When the State levies taxes within Its authority,property not in Itself taxable by the State may be used as a measure of the tax Imposed. rnls principlehas been frequentlydeclaredby decisions of this court. In the present case the State imposes a pkklege tax, clearly within Its authority,and It has adopted as a measure of that tax the proportion which the specified local property bears to the entire estate of the decedent. That It may do so within llmltatlonswhSch do not really make the tax one upon property beyond Its jurisdiction,the decisions to

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HonorableRobert S. Calvcrt,page 6 (M-l5j

which we have referred clearly establish. The transfer of certain propertywlthln the State la taxed by a rule which considersthe entire estate in arrivlni: at the amount of the tax. It 13 In no .;c::.t z:cnr,e a tax upon the foreign property. ~e;il or personal. It Is only In Instances :nerethe State exceeds Its authority In Imposinga tax upon a subject matter within I's jurisdictionIn such a way as to really amount to tnxlng that which Is beyond Its authority, ':hut such exercise of power by the State is .leld void. To say that to apply a differentrule'rig;latlng successionto .,sldent and nonresidentdecedents la to levy a tax upon foreign estates, Is to distort the statute from its purpose to tax the privilege,which the statutehas created, Into a property tax, and is unwarranted by any purpose or effect of the enactment,as we view It."

In holding that the equal protectionof the law clause of the FourteenthAmendmentwas not violated, the Maxwell case further declaresat pages 541 and 543:

"Equal protect&onof the laws requires equal operation of the laws upon all persons In like circumstances. Under the statute, In the present case, the graduated taxes are levied equally upon all interestspassing from non-residenttestatorsor Intestates. The tax Is not upon property,but upon the privilegeof succession,which the State may grant or withhold. It may deny It to some and give It to others. The State is dealing In this Instancenot with the transfer of the entire estate,but only with certain classes of property that are subject to the jurisdictionof the State. It must find
some rule which will adequatelydeal with this situation. It has adopted that of the proportion of the local estate In certain property to the entire estate of the decedent. In making classlflcation,which has been uniformlyheld to be wlthIn the power of the State, Inequalitiesnecessarily arise, for some classes are reached, and others omitted, but this has never been held to render

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HonorableRobert S. Calve&, page TV (K-15)

such statutesunconstitutional. Beers v. Glynn, 211 U.S. 477. This principlehas been recognized in a series of cases In this court

. . . It has been uniformlyheld that the FourteenthAmendmentdoes not deprive the States of the right to determine the llmltations and restrictions !lpon the right to lnherlt property,but 'at the most can only be held to restrain such an exercise of power as would exclude the conceptionof Judgmentand discretion,and which would be so obviously arbitraryand unreasonableas to be beyond the pale of governmentalauthority.' The FourteenthAmendment does not dlminl~h'thetaxing power of the State, but only requires that In Its exercise the citizenmust be afforded an opportunityto be heard on all questions of llablllty and value, and shall not, by arbitrary and discriminatory provlslons,be denied equal protection. It does not deprive the State of the power to select the subjects of taxation. But It does not follow that because it can tax any transfer (hatchv. Reardon, 204 U.S. 152, Pjq), that it must tax all transfers,or that all must be treated alike.

"The question of equal protectionmust be decided as between resident and non-resident decedentsas classes,rather than by the lncldence of the tax upon the pnrticularestates whose representatives are here complalnlng. Absolute equality is impracticableIn taxation, and Is not requiredby the equal protection clause. And lneo.ualltien that result not from hostile discrimination, but occasionallyand Incidentallyin the appllcatlonof a system that Is not arbitrary In It:; clanslflcatlon.
are not sufficientto defeat the lava."

Maxwell was concernedwith the validity of a statute which dealt with non-residentdecedent;differentlyfrom residentdecedents in determiningthe amount of the lnherltante tax. In 14.07(2),we are concernedwith a distinction

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HonorableRobert S. Calvert,page 8 (M-15)

between residentdecedents, said distinctionbeing based on whether the residentdecedent:; owned property outside this State a3 well as within this State. We deem thl:; difference In the statute under considerationto m:kke no differencein the appllcablllty of the principlesenunciated In Maxwell. We therefore hold that Article 14.07(2) In **no** way vlolatestkieFourteenth iimendment.

Their contcntlonIs tliclt the ::tate

Is bound by its
error In falling to revoke OS cancel Ita prior regulationpromulgated under the old :;tatute and InadvertentlyIncluded In Its publlshedbooklet entitled "Inheritance Tax and Federal Estate Tax Credit State of Texa:; 1965." However, It further appears that there has been no administrative or departmental

practice, construction, or Interpretation applying the **statute** in such a way as to omit real property of decedents in other states In determiningthe rate of tax to be applied. Under such circumstances, we cannot hold that the state is bound to its prejudiceby such an error. In any event, it is well settled In Tcxaa, and elsewhere,that the state does not lose Its right to taxes by reason of lathes, estoppel,or acts of negligenceor inadvertenceof Its officers; for It cannot bc thereby cut off from the lawful exercise of Its sovereignpowers. State v. Federal Land Bank of Houston, 1.60 Tex. 292, 329 S.W.2d 847 (1 )- city of s an 'arc03v. Zimmerman,3Gl S.W.2d 929 (Tc~.Cl~.Ap~?~1$62
, error ref., n.r.e.); Schriverv. Board of Com'rs of Sedgwlck County, 189 Han. 548, 37b P 2d 124 (1 b9j* Inhabitantsof Town of Milo v. Ml10 Water Co., i3 Me. 372, -16; i.'lb3 1932). Institutefor Trend Researchv, G rlffln, 2d 268 (195 ); Lekn' 139 A. State, 2 S.W.2d 199, 200 Tex.Clv.App. 1951, no writ hlst.); North American Co. v. Green, 129 So.2d 603 (1959); Con;ol;;ate;Co. of Ne;.York v. Ct;tz Tax Commission,261 N.Y.S.2d 7b [l 65 W lk Hi 1 C0. v. t d States, lb2 >'.2d 259 (7th Clr. i947
, czrtr%n. 323 U.S. 771.

The next contention Is that the title of House Bill No. 1182 enacted in 1965 Is insufficientfor failure to contain a statementthat the Inheritancetax was to be computedby lncludlng real property of Texas decedents located outsideTexas. This contention is furtherbuttressedby a statement In the title, wherein It Is recited that the act is "levyingno new taxes." It Is thus ultimatelycontendedthat the statute should not be construed to change the prior laws and administrativeconstructionthereof.

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The caption of House p. 830, reads as follows: page 9 (M-15)

Bill No. 1182, Acts 1965, 59th Leg.,

"An Act concerningpayment and admlnlstratlon of the InheritanceTax; amending Chapter 1, Acts of the 56th Legislature,Third Called Session, 1959, being Chapter 14, Title 122A, 'TaxationGeneral' of the Revised Civil Statutes of Texas, as amended; providing for a new Article 1.032 to Chapter 1 of said Title 122A (Deficiency Determination and Redetermination); repealing Chapter 15 of said Title 122A; repealing that part of Chapter 192, Acts of the 43rd Legislature,1933, as amended, being Article 107a and Article 107b, Vernon's Annotated Penal Code of Texas (Inheritance Tax Reports) and Acts 1923, Second Called Session, page 67, being Article 140 of said Penal Code (Inheritance Tax Reports); repealing certainArticles of said Chapter 14; making no other changes In any other Chapters of said Title 122A and levying no new taxes; providinga savings clause; providinga severability clause; providing for an effectivedate; and declaring an emergency."

It Is apparent that the statutenot only repealed Chapter 15, but also amended, revised and changed Cha ter 14, adding
some new provisions, lncludlniArticle 14.07(27. The effect of these changeswas to create a new statute sub $ect to a new construction. 53 Tex.Jur.2d 136, Statutes, Sec. 90, 2 C.J.S. 411, Statutes, Sec. 243. Where the legislaturehas Incorporatednew matter Into the statu'r;e,

or has changed the meaning or applicationof previous laws, the addition and changesmust be given effect. American IndemnityCo. v. City of Austin, 112 Tex. 239, 246 S.W. ty;g2ff922];Gately v. Humphrey, 151 Tex. 588, 254 S.W.2d 98

An amended act is to be construedas If the original statute had been repealed, and It will be presumed that a change In the law was Intended to which the courts will give effect. Amerlcan Surety Co. of New York v. Axtell Co., 122 Tex. 166, 36 Sn (1931)

. While the matter of the computationor measure of the tax
was not expresslymentioned In the caption, It was not necessary

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to do so because the title sufficientlyIndicatesthe general subject of the act and gives sufficientnotice that a substantial change as to Its provisionsfor applicationand computation may be expected.

A liberal constructionof the title as a whole must be given, and every lntendmentIn favor of Its constltut.:o~;l;y and every doubt must be resolved In favor thereof.

. . . 3 7, Statutes,Sec. 220; Gulf. Ins. Co. v. James, 143 Tex. 424, 1 5 S.W.2d 966 (1945). Such rules also apply to taxation, lni cludlng Inheritanceand estate taxes. utes, Sec. 226. 82 C..J.S. 391, 393, StatThe declaration In the title that no new tax Is being levied simplymeans what It says. No new tax Is levied In that the nature and characterof the Inheritancetax as a privilege tax has not been changed. Since the method of computationIs held not to amount to a direct tax upon the decedent'sproperty outside I;he

state, we conclude that no new tax Is In law being levied. Consequently, the title is not deficient In falling to expresslymention that specific subjectmatter. 53 Tex.Jur. 2d 93-98, Statutes, Sec. 52.

Finally, they contend that Article 14.07(2) Is defective because Its applicationrequiresa constructionof reading Into the statute the phrase "as the total value of the beneflciary's share of the decedent'sestate which Is situated In Texas" Immediately

next precedingthe phrase "beforeallowablebeneflciary deductions." This becomes apoarent In comparingArticle 14.07(2) with Article 14.07(l). However, such a constructionIs reasonableand proper to give effect thereto and In rendering the statutesharmonious.

In construinga statute, If a word or phrase must be added to a particularpart or section In order to carry out the manifest Intentionof the legislature,as disclosedby the entire enactment,the missing wore? or phrase may be added. 53 Tex.Jur. 2d 201, Statutes, Sec. 138.

If two reasonableconstructions of a statute can be obtained, then clearly In the public Interest,the construction given the statute by the official chargedwith the admlnlstratlon of the statute should be given effect. Yoakum County v.

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221 S.W. 880 (1920).

SUMMARY

Article 14.07(2) of Title 122A, TaxatlonGeneral, Is not unconstitutional In using the residentdecedent's entire estate wherever sltuated as one factor In determiningthe rate of tax to be applied to the successionof property within the State.

Such amended statute does not levy a new tax, and Its title Is sufficientto give notice of Its substantivechange In tax computation.

The State Is not bound by an erroneousor Inadvertenterror In the promulgationof Its regulations;and neither lathes, estoppel, waiver, nor the negligent or Inadvertentacts of Its officerswill prevent the State from properly construingor enforcingthe tax statute. Ve+q7trulyyours,

Preparedby: Marietta McGregor Payne Kerns B. Taylor AssistantAttorneysGeneral

APPROVED: OPINION COMMITTEE Hawthorne Phllllps,Chairman W. V. Geppert, Co-Chairman Nell Williams Gordon Cass Pat Bailey

STAFF LEGAL ASSISTANT: A. J. Carubbl,Jr.

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