1 

\ 

Iknorable Robert S. Calvert Opinion No. (C-4-03) 

Comptroller’of Public Accounts 

Austin, Texas Re: Whether, under submitted 

facts, the corpus of two 

,trusts are subject to 

Inheritance Taxes under 

Chapters~ 14 and 15, 

Volume 20A, Vernon's 

Dear Mr. Calvert: Civil Statutes. 

In connection with your request for an opinion of ‘this 

office on then above captioned matter, we have been :advised 

of the following facts. 

: ;. 

William C. Springer, a resident of Pinehurst, Montgomery 

County, Texas, died on July 3, 1964, at whlc~h time he was less 

than three years' of age. The decedent was a beneficiary of two 

trusts, the “William C. Springer 1962 Trust” and the “Wllllam 

C. Springer 1963 Trust". These Trusts were created by the 

decedent's great-grandmother. The terms oft the two Trusts are 

Identical. The corpus of the 1962 Trust had a value of approximately $88,000.00 at the date of the decendent’s death, and 

the corpus of the 1963 Trust was worth approximately $102,500.00 

on that date. The pertinent portions of~paragraphs Two of both 

Trust Agreements are the following: 

*.. : ., 

" 'I f the beneficiar 

T 

dies before attaining twenty-one (21 years of age, upon ,, 

the beneficiaryIs death, such Trust 

shall terminate and such Trust Estate 

shall be distributed to such one ormore persons and corporations in such 

shares, manner, and proportions as 

the beneficiary may'appoint by ri.11. 

Any portion of such Trust Estate not 

effectively appointed shall be dlstributed upon the beneficiary's death 

to the issue of the beneficiary, btit 

if none of the beneficiary's issue is 

then living, to the issue of the parent 

of the beneficiary, which parent was 

one of Trustor's issue. . . ." 

-1903- 
- . 

Honorable Robert S. Calvert, Page 2 Opinion No. (C-403) 

/ 

Both Paragraphs Four of the Trust Agreements provide that 

if any portion of the Trust Estates which, in default of 

appointment upon the termination of the Trusts, would be distributed to a person who has not attained twenty-one years of 

age, such portion would be retained by the Trustee, in trust, 

as a Trust Estate of a separate and distinct Trust for such 

person until such person attains the age of twenty-one years 

at which time the Trust shall terminate and distribution of 

the corpus shall be made to the person entitled thereto. 

The decedent having died intestate and without issue, 

proportionate distributions have been made to Trusts for the 

decedent’s brothers and sister. The attorneys for the estate 

have submitted a Brief In support of their position that no 

death taxes have ~accrued under either Chapter 14 or. Chapter 

15 of Title 122A, Taxation-General, Vernon’s Civil Statutes. 

We agree that no inheritance taxes accrued under the provisions 

of Article 14.01 which enumerates the transfers which are subject to State Inheritance taxes. As pointed out :in Calvert v. 

Fort Worth National Bank, 163, Tex. 405, 356 S.W.2d.918, 921 

‘( 1962) : 

!‘When the’Legislature intended to 

tax the succe~sslon to property 

other than that owned by the ~decedent 

at the time of his death, such inten-. 

tion is plainly and unequivocably 

stated. ” ,~ .’ 

_- 

f~~~“K;;;d;~““(“1T the decedent but subject, upon passing, 

property passing under a general power 

of appointment exercised by the decedent by will; (2) certain 

life-insurance proceeds; (3) transfers made or intended to take 

effectin possession or enjoyment after the death of the grantor 

or donor and (4) transfers ink contemplation of death. In the 

instant case,.the corpus of the Trusts did not pass by any of 

the enumerated taxable transfers. :,Therefore no inheritance 

taxes are due under the provisions of Chapter 14. 

We p~ass now to a consideration of whether any death taxes 

are due the State under the provisions of Chapter 15. The 

attorneys for the estate have advised us that a Federal Estate 

Tax will be due upon the decendent’s estate; but they take the 

the position that Inasmuch as no inheritance taxes have accrued 

under the provisions of Chapter 14, no tax is due under the 

provisions of Chapter 15. In support of this position, they 

rely upon Article 15.01 and Article 15.04. 

Article 15.01 reads, in part, a,s follows: 

-1904- 
Honorable Robert S. Calvert, Page 3 Opinion No. (C-403) 

n 

. . . an Inheritance and transfer 

tax is hereby levied upon the net 

Estate of every decedent. . D whose 

Estate, or any portion theresf. . . 

is made taxable under the Inheritance 

Tax Laws of this State." 

Article 15.04 reads'as follows: 

"Where no inheritance tax is imposed 

on an estate, which is situated in 

this State, under the laws of this 

State, by reason of Its value not 

exceeding in value,t.he amount of 

exemptions, and an estate tax Is 

imposed on such estate by the 

Federal Government, then there shall 

be, and is hereby levied and shall 

be collected from such estate, an 

Inheritance or transfer tax sufficient 

In amount to equal eighty per cent 

(80%) of said tax Imposed by the 

Federal Government under the Revenue 

Act of 1926,~on that portion of said 

estate which is situated in the State 

of Texas. 

"In computing and determining the 

rate of the tax in such cases named ' 

partition and distribution among the 

joint or several owners of same, ano 

said tax shall be due and payable and 

shall be subject to the same Interest 

and penalties for nonpayment, as are 

other inheritance taxes under the provisions of the inheritance tax laws of 

the State." (Emphasis supplied throughout) 

-1905- 
. . , 

Honorable Robert S. Calvert, Page 4 Opinion No. (C- 403) 

It is true that Chapter 15 is entitled "Additional Inheri- 

+,znr,e Tw!' ad. that some of the language used fn Chapter 15 with 

reference to "inheritance" taxes is misleadfng in the sense thdt 

Chauter 15 is an estate tax rather than an inheritance tax. 

Gldna 1: -- 

a 

Sim‘co v. Shirk, 144 Tex. 259* 206 S.W.2d 221 (1947); Sinnott v. 

i9x. 366, 322 S.W.2d 507 (1959). Articles 15.01 

: 

nd 12.04 are not entirely inaccurate, however, as they refer 

to a transfer" tax which is the essence of an estate tax. 

It's subject matter is "the exercise of the legal power of 

transmission of property, 0 0n0 Stebbins 286 U.S. 

137, 141 (1925). Whereas an Inheritance tax Is levied upon . 

"the right to receive as distinguished from the right oftransfer. 0 0"0 Rethea v. Shenpard, 143 S.W,2d 997 (Tex.Clv. 

App. 1940, error ref.) 

A brief examination of the history that led to the enactment of Chapter 15 conclusively establishes the nature of the 

tax. For a good many years there had been considerable opposition to the Federal Government's invasion of the death tax 

field. Roth the Federal Inheritance Tsxand the 1916 Estate 

Tax Act had been attacked unsuccessfully as an invasion of the 

Dower of the States to reaulate the transmission of nrouerty 

it death. Knowlton v. MO&e, 1'78 U.S. 41 (1900), New York - 

v 256 U.S. 345 (1941). In 1924 Congress 

enacted the first so-called "credit" nrovision. Rev. Act. of 

1924, Sec. 301(b), By the terms of this provision, the taxpayer was allowed "credit" for State taxes paid on transfers of 

pro erty which were within the scope of the Federal law. The 

25 8 allowable credit under this Act was increased to 80% by the 

Revenue Act of 1926, Sec. 301(b). This amount of allowable 

credit has not been increased by subsequent revisions of the 

Federal Estate Tax and is still referred to as a credit against 

the basic Federal tax. 

The wording of the "credit" provision in the Federal Act 

requires that the estate, inheritance, legacy or succession 

taxes must have been actually paid to the State'bef'ore the 

taxpayer may deduct such amount from the total Federal tax. 

Whenever the full amount of the allowable 8G$ is not taken up 

by State taxes, the taxpayer's "credit" is reduced accordingly 

tith the result, in theory, at least, that he pays the same 

amount regardless of the eventual disposition of that amount 

between the State and the Federal Government. 

After the enactment of the credit provision, most States 

passed laws designed to take advantage of the provision. The 

Texas Statute, presently embodied in Chapter 15, was first 

;yted in 1933. Acts 1933, 43rd Leg., pa 581, Ch. 192, Sec. 

. Article 15.01 specifically provides for the levying of the 

tax in the following terms: 

-X9?6- 
Honorable Robert S. Calvert, Page 5 Opinion No. (C-403) 

*Said tax shall be, and is, levied 

upon the entire net value of the 

taxable estate of the decedent 

situated and taxable In the State 

of Texas, and the tax on each such 

estate shall be equal to the 

difference between the sum of such 

taxes due this State as inheritance 

or transfer taxes and eighty per cent 

(80%) of the total sum of the estate 

and transfer taxes imposed on such 

estate by the United States Government under the Revenue Act of 1926, 

by reason of the property of such 

estate which is situated in this 

State and taxable under the laws 

of this State." 

Thus, the amount of the tax is a fixed percentage of an 

amount which is determined by the basic Federal Tax; and the 

provisions of the Federal law, not the provisions of the Texas 

law, determine every step to be takenin computing the total 

tax figure. 

In State v. Wiess, 141 Tex. 303, 171 S.W 2d 848 (1943), 

the court held that the terms "net estate" and "gross estate" 

as used in Article 714&a (presently Article 15.01) must be 

given the same meaning as they sre given In the Federal Act. 

At page 851 of the opinion, the Court said: 

* .Since it is evident on the 

fici of our statute that It is 

intended to take full advantage 

of the Federal Revenue Act of 

1926, and is intended to tax all 

property in this State, covered 

by such Federal Revenue Act, we 

must look to the Federal Revenue 

Act to ascertain the meaning of 

the term 'net estate' as used in 

our act. . . ." 

In Sinnott v. Gidney, sunra,the court was concerned with 

the construction of a will for the purpose of determining, 

among other things, whether the burden of payment of estate 

taxes fell on the residuary devise. In that case, the estate 

situated in Texas did not exceed the exemptions allowed by law 

and no basic inheritance tax was payable. The tax assessed 

had been assessed and paid under the provisions of Article 

714&a, Vernon's Civil Statutes, presently carried in Chapter 15. 

-1907- 
'Honorable Robert S. Calvert, Page 6' Opinion No. (C-403) 

In the course of its determination of the questions under 

consideration, the court made the following statement with 

regard to Section 4 of Article ,7144a, which is now Article 15.04, 

the very Article upon which the taxpayer's attorney relies: 

n 

. . .Section 4 deals with the 

situation in which there is no 

basic inheritance tax liabllfty. 

Unlike Section 2, it contains no 

apportionment provision and simply 

requires that the tax be paid out 

of the whole of the estate before 

partition and distribution. The 

tax Imposed by the latter section 

Is an additional estate tax. As 

between the beneficiaries of the 

estate, it is payable out of the 

same finds or property as the 

federal estate tax unless the 

will provides otherwise. See 

Simi?o v. Shirk, 146 Tex. 259, 206 

S.W;2d 221." (at p. 513). 

The underscored portion of the above statements specifically 

recognizes that a taxis Imposed even where there Is no basic 

tax liability and is not limited to cases in which there is no 

liability by reason of exemptions. 

~Likewise, in Simco v. Shirk, supra, no basic inheritance 

taxes had accrued, however an additional tax had been levied 

under the provisions of Article 714&a. The specific question 

before the court was whether the full amount of the tax was 

due in view of the fact that the taxes already paid to other 

States, cou led with the amount of the tax levied under 

Article 714 fi a would exceed the total allowable 80% credit. In 

upholding the tax, the court sald,at page 223,,that Article 

7144a was passed by the Legislature "to take advantage of the 

80 per cent relinquished by the ~Federal Government." 

In Strauss 2% S.W.2d 287 (Tex.civ.App. 1952, 

error ref., n.r.e.) , the court was concerned with the followI 

$Y%,g% 

At the death of a husband, a tax in the amount of 

was levied under the provision of Chapter 5A of 

Title 122, V.C.S., presently Chapter 15. At that time, the 

Federal Government levied the estate tax against the entire 

community estate. The State of Texas had received credit for 

80% of the amount of the tax imposed on the entire community 

estate under the provisions of the 1926 Federal Estate Tax 

Act. Section 813, Title 26, U.S.C.A. 

-1908- 
Honorable Robert S. Calvert, Page 7 Opinion No. (C-403) 

At the death of the wife, who died less than a month after 

the husband, a deduction was claimed for the tax previously 

paid at the death of the husband. Article 7125, 20 V.C.S., 

lists among permissible deductions the following: 

* . .an amount equal to the value 

of any property forming a part of 

the gross estate situated in the 

United States received from an 

person who dies'within five (5 7 

years prior to the death of the 

decedent, this deduction, however, 

to be only In the amount of the 

value of the property unon which 

an Inheritance tax was actually 

& and shall not include any legal 

exemwtions claimed bv and allowed 

the h'eirs or legatees of the estate 

of the prior decedent." 

The court refused to allow the deduction for the reason 

that~ the wife's community Interest had not been received from 

the husband at his death and for the further reason that no 

inheritance tax had been paid to the State on the receipt of 

such interest within the last five years under the provisions 

..of Chapter 5.. 

,,,- . While the Strauss case is not precisely In point since no 

protest was made at the husband's death as to the tax levied 

under Chapter 5A, nevertheless the case shows an instance in 

which the tax was levied not "by reason of . . :the estate’s 

value not exceeding In va= the amount of exemptions. e ." 

but solely because the allowable 80% credit' based on the net 

estate as determined by the Federal Government exceeded any 

taxes due under Chapter 5. Moreover the Comptroller has 

advised us that he has never made the above quoted excerpt 

from Article 15.04 the criterion of tax liability under 

Chapter 15. It is, of course, well settled that the consistent 

departmental construction of a statute by the official charged 

with the administration thereof is entitled to great weight 

and will not be departed from unless clearly wrong. 

Jur.26 259-264, Sec. 177. 

53 Tex. 

It is admitted that a Federal Estate Tax will be due upon 

the-decedent's estate. This being true, the allowable 80% 

credit will necessarily accrue regardless of the fact that no 

Inheritance tax accrued under the provisions of Chapter 14. 

Only thus can the State take full advantage of the Federal 

Revenue Act of 1926 and comply with the directives and general 

purpose of Chapter 15. The taxpayer will pay no more because 

-1909- 
. . . . 

Honorable Robert S. Calvert, Page 8 ~~ Opinion No. (C-403) 

if he does not pay the State the tax in question, he will be 

required to pay the same amount to the Federal Government. 

SUMMARY ------- 

The additional estate tax 

levied under the provisions 

c&C;~~t;rvl~STitle 122A,, 

. . ., accrues 

even though no inheritance 

taxes have accrued under the 

provisions of Chapter 14, 

Title 122A, Tax-Gen., V.C.S. 

Yours very truly, 

WAGGONER CARR 

Attorney General'of Texas 

HMcQP:dl 

APPROVED BY OPINION COMMITTEE 

W. V. Geppert, Chairman 

J. Arthur Sandlin 

John Reeves 

W. 0. Shultz 

APPRO'.'RD FOR THE ATTORNEY GENERAL 

BY: Stanton Stone 

-1910-