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\ 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 anopinion of ‘this office on thenabove captioned matter, wehave been :advised of the following facts.

:;. William C. Springer, aresident of Pinehurst, Montgomery County, Texas, died onJuly 

### 3,1964,at whlc~htime he wasless than three years' of age. The decedent was abeneficiary of two trusts, the “William C. Springer 

### 1962Trust” and the “Wllllam C. Springer 

### 1963Trust". These Trusts were created by the decedent's great-grandmother. The terms oftthe twoTrusts are Identical. The corpus of the 

### 1962Trust had avalue of approximately $88,000.00 at the date of the decendent’s death, and the corpus of the 

### 1963Trust wasworth approximately $102,500.00 on that date. Thepertinent portions of~paragraphs Twoof both Trust Agreements are the following: *.. : ., " f the beneficiar 'I Tdies 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 andcorporations in such shares, manner, andproportions as the beneficiary may'appoint by ri.11. Anyportion 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.

. . ."

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Honorable Robert S. Calvert, Page 2 Opinion No. 

### (C-403)

/ Both Paragraphs Four of the Trust Agreements provide that if anyportion of the Trust Estates which, in default of appointment upon the termination of the Trusts, would be distributed to aperson whohas not attained twenty-one years of age, such portion would be retained by the Trustee, in trust, as aTrust Estate of a separate anddistinct 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 madeto the person entitled thereto. Thedecedent having died intestate andwithout issue, proportionate distributions have been madeto Trusts for the decedent’s brothers andsister. The attorneys for the estate have submitted aBrief In support of their position that no death taxes have~accrued under either Chapter 14 or.Chapter 

### 15of Title 122A, Taxation-General, Vernon’s Civil Statutes. Weagree 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 WorthNational Bank, 

### 163,Tex. 

### 405,356S.W.2d.918, 921

‘(1962): !‘Whenthe’Legislature intended to

tax the succe~sslon to property other than that ownedby the ~decedent at the time of his death, such inten-. tion is plainly andunequivocably stated. ” ,~ .’

_- f~~~“K;;;d;~““(“1T the decedent but subject, upon passing, property passing under ageneral power of appointment exercised by the decedent by will; (2) certain life-insurance proceeds; 

### (3)transfers madeor intended to take effectin possession or enjoyment after the death of the grantor or donor and (4) transfers inkcontemplation 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 dueunder the provisions of Chapter 14. Wep~assnowto 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 Taxwill be dueupon 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 andArticle 15.04. Article 15.01 reads, in part, a,sfollows:

-1904-Honorable Robert S. Calvert, Page 

### 3 Opinion No. (C-403)

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. . . an Inheritance and transfer tax is hereby levied upon the net Estate of every decedent.

. Dwhose Estate, or anyportion theresf.

. . is madetaxable under the Inheritance TaxLawsof this State." Article 15.04 reads'as follows:

"Whereno inheritance tax is imposed on anestate, which is situated in this State, under the laws of this State, by reason of Its value not exceeding in value,t.he amountof exemptions, and anestate tax Is imposed on such estate by the Federal Government, then there shall be, andis hereby levied and shall be collected from such estate, an Inheritance or transfer tax sufficient In amountto 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 anddetermining the rate of the tax in such cases named '

partition anddistribution among the joint or several owners of same, ano said tax shall be due andpayable and shall be subject to the sameInterest andpenalties for nonpayment, as are other inheritance taxes under the provisions of the inheritance tax laws of the State." (Emphasis supplied throughout)

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

### 403)

It is true that Chapter 15 is entitled "Additional Inheri- +,znr,eTw!' ad. that someof the language used fn Chapter 15with reference to "inheritance" taxes is misleadfng in the sense thdt Chauter 15 is anestate tax rather than aninheritance tax. Gldna 1: -- a Sim‘cov. Shirk, 144 Tex. 259* 

### 206S.W.2d 221 (1947); Sinnott v.

i9x. 

### 366,322S.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, 00n0 Stebbins 

### 286U.S. 

### 137,141 (1925). Whereas anInheritance tax Is levied upon
. "the right to receive as distinguished from the right oftransfer. 00"0 Rethea v. Shenpard, 143S.W,2d 997 (Tex.Clv. App. 1940, error ref.) Abrief examination of the history that led to the enactment of Chapter 15 conclusively establishes the nature of the tax. For agood manyyears there hadbeen considerable opposition to the Federal Government's invasion of the death tax field. Roth the Federal Inheritance Tsxand the 1916 Estate TaxAct hadbeen attacked unsuccessfully as an invasion of the Dower of the States to reaulate the transmission of nrouerty it death. Knowlton v. MO&e, 1'78U.S. 41 (1900), NewYork - v 

### 256U.S. 

### 345 (1941). In 1924 Congress enacted the first so-called "credit" nrovision. Rev. Act. of 1924, Sec. 301(b), Bythe terms of this provision, the taxpayer wasallowed "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 wasincreased to 

### 80%by the RevenueAct of 

### 1926,Sec. 301(b). This amount of allowable credit has not been increased by subsequent revisions of the Federal Estate Tax andis still referred to as a credit against the basic Federal tax. Thewording of the "credit" provision in the Federal Act requires that the estate, inheritance, legacy or succession taxes musthave been actually paid to the State'bef'ore the taxpayer maydeduct such amountfrom the total Federal tax. Whenever the full amountof 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 hepays the same amountregardless of the eventual disposition of that amount between the State andthe 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 andtaxable In the State of Texas, andthe tax on each such estate shall be equal to the difference between the sumof such taxes due this State as inheritance or transfer taxes and eighty per cent 

### (80%)of the total sumof the estate andtransfer taxes imposed on such estate by the United States Governmentunder the Revenue Act of 1926, by reason of the property of such estate which is situated in this State andtaxable under the laws of this State." Thus, the amount of the tax is a fixed percentage of an amountwhich is determined by the basic Federal Tax; andthe 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. 

### 303,171S.W2d 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 samemeaning as they sre given In the Federal Act. 

### Atpage 

### 851of 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, amongother 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 andnobasic inheritance tax waspayable. Thetax assessed hadbeen assessed andpaid under the provisions of Article 714&a, Vernon's Civil Statutes, presently carried in Chapter 15. -1907-'Honorable Robert S. Calvert, Page6' Opinion No. (C-403)

In the course of its determination of the questions under consideration, the court madethe following statement with regard to Section 4 of Article ,7144a, which is nowArticle 15.04, the very Article upon which the taxpayer's attorney relies:

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. . .Section 4deals 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 anddistribution. 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 samefinds or property as the federal estate tax unless the will provides otherwise. See Simi?o v. Shirk, 

### 146Tex. 259, 

### 206 S.W;2d 221." (at p. 513). Theunderscored portion of the above statements specifically recognizes that a taxis Imposed even where there Is nobasic tax liability andis not limited to cases in which there is no liability by reason of exemptions. ~Likewise, in Simco v. Shirk, supra, nobasic inheritance taxes hadaccrued, however an additional tax hadbeen levied under the provisions of Article 714&a. Thespecific question before the court waswhether the full amountof the tax was due in view of the fact that the taxes already paid to other States, cou led with the amountof the tax levied under Article 714 a would exceed the total allowable 80%credit. In

fi upholding the tax, the court sald,at page 223,,that Article 7144a waspassed by the Legislature "to take advantage of the 80per 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 ahusband, a tax in the amount of

waslevied under the provision of Chapter 5Aof Title 122, V.C.S., presently Chapter 15. At that time, the Federal Government levied the estate tax against the entire communityestate. TheState of Texas had received credit for 80%of the amountof 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, whodied less than amonthafter the husband, a deduction was claimed for the tax previously paid at the death of the husband. Article 7125, 20V.C.S., lists amongpermissible deductions the following:

*

. .an amountequal to the value of anyproperty forming apart of the gross estate situated in the United States received from an person whodies'within five (57 years prior to the death of the decedent, this deduction, however, to be only In the amountof the value of the property unon which anInheritance 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 hadnot been received from the husband at his death and for the further reason that no inheritance tax hadbeen 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 wasmadeat 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 madethe 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 Taxwill 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 andgeneral purpose of Chapter 15. The taxpayer will pay nomore because -1909-. .. .

Honorable Robert S. Calvert, Page8 ~~ Opinion No. (C-403)

if he does not pay the State the tax in question, he will be required to pay the sameamountto the Federal Government.

SUMMARY -------
Theadditional 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

BYOPINIONCOMMITTEE W.V. Geppert, Chairman J. Arthur Sandlin John Reeves W. 0. Shultz APPRO'.'RD

FORTHEATTORNEY

GENERAL BY: Stanton Stone

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