Court Opinion

ID: 7954405
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:47:32.065205+00
Date Added: 2024-06-11T16:34:15.737736
License: Public Domain

Griffin, J.
(dissenting). In this appeal the issue is whether the state inheritance tax is applicable to the transfer at death of the right to receive future installments of Michigan lottery winnings. We conclude that imposition of the tax is required by statute, and therefore we would affirm the decision of the Court of Appeals.
i
During her lifetime Rose D’Amico won the state lottery. As a result of her good fortune, she became entitled to receive $1 million, payable in twenty annual installments of $50,000 each. When she died on March 13,1981, fourteen of the installments remained unpaid.
*565A controversy concerning the last will and testament of Rose D’Amico was settled by agreement, and the residue of her estate, including her entitlement to the future lottery installments, was assigned to six named individuals by the Kent Probate Court. There remains, however, the question whether the inheritance tax is applicable to this transfer.
At first, the Michigan Department of Treasury computed the inheritance tax to be assessed without reference to the lottery winnings. Later, however, the department made a redetermination and applied the tax to the value at death of the right to receive the future installments. It was determined that the future installments, which aggregated $700,000, had a discounted value at death of $299,000.
Petitioners, on behalf of the estate, challenged the redetermination, claiming that the lottery winnings were exempt from the inheritance tax by virtue of § 34 of the Lottery Act which then provided:
No state or local taxes of any kind whatsoever shall be imposed upon the proceeds from a prize awarded by the state lottery. [MCL 432.34; MSA 18.969(34).]
The probate judge agreed with petitioners and ruled that the tax did not apply. He stated, however, that "[t]his matter undoubtedly will be appealed ... as this Court feels it should . . . .”
On appeal, a divided panel of the Court of Appeals reversed,1 reasoning that the inheritance tax statute does not impose a tax upon the ”pro*566ceeds,” or the property itself, but rather it imposes a tax
upon the transfer of any property, real or personal, of the value of $100.00 or over ... to persons . . . not exempt by law in this state from taxation ... (a) When the transfer is by will or by the intestate laws of this state from any person dying seized or possessed of the property while a resident of this state. [MCL 205.201(l)(a); MSA 7.561(l)(a). Emphasis added.]
The majority concluded that petitioners had failed to establish "clearly and unambiguously, beyond doubt or cavil” the claim of the estate to an exemption from the inheritance tax. 171 Mich App 296, 302; 429 NW2d 659 (1988). We granted leave to appeal. 432 Mich 920 (1989).
ii
As a general rule, exemptions from taxation are not favored. Michigan Baptist Homes & Development Co v Ann Arbor, 396 Mich 660, 669-670; 242 NW2d 749 (1976); Edison v Dep’t of Revenue, 362 Mich 158, 162; 106 NW2d 802 (1961); Romeo Homes, Inc v Revenue Comm’r, 361 Mich 128, 137; 105 NW2d 186 (1960). It is a well-settled principle that a tax exemption must be clearly and unequivocally established by the party seeking the favored position. In re Smith Estate, 343 Mich 291; 72 NW2d 287 (1955); see also Town & Country Dodge, Inc v Treasury Dep’t, 420 Mich 226, 243; 362 NW2d 618 (1984). Thus, statutory tax exemptions are to be strictly construed against the party claiming the exemption. Ladies Literary Club v Grand Rapids, 409 Mich 748, 753; 298 NW2d 422 (1980); Town & Country Dodge, Inc v Dep’t of Treasury, supra at 242-243. See also 3A Sands, *567Sutherland Statutory Construction (4th ed), § 66.09, pp 327-328.
While interpreting a provision of the inheritance tax act, this Court stated:
|I]t is well to observe that our point of departure in the interpretation of any taxing act is the consideration that a preference in or an exemption from taxation must be clearly defined and without ambiguity. Taxation, like rain, falls on all alike. True, there are, in any taxing act, certain exceptions, certain favored classes, who escape the yoke. But one claiming the unique and favored position must establish his right thereto beyond doubt or cavil. [In re Smith Estate, supra at 297.]
Therefore, in the present case, petitioners face a heavy burden if they are to establish that the transfer in question is exempt from the inheritance tax. An exemption will not be inferred from language of a statute if the words admit of any other reasonable construction. Detroit v Detroit Commercial College, 322 Mich 142, 148; 33 NW2d 737 (1948).
hi
As we see it, the case before us turns on whether the inheritance tax imposed amounts to a tax on the proceeds of a lottery prize or a tax on the transfer of the proceeds.
The statute upon which petitioners rely, by its terms, provides only for an exemption from direct taxation.2 Again, § 34 of the Lottery Act provided:
*568No state or local taxes of any kind whatsoever shall be imposed upon the proceeds from a prize awarded by the state lottery. [Emphasis added.]
It has long been recognized in this state that the inheritance tax is not a direct tax on property.3 As this Court stated many years ago:
[T]he State inheritance tax is [not] a tax upon property, although the value of property is used to fix the measure of the tax .... The right of transmission of property from the dead to the living, the right of the living to receive property from the dead, are not inherent rights, but are privileges which may be taxed by a privilege tax. [In re Fish Estate, 219 Mich 369, 373-374; 189 NW 177 (1922).]
See also Union Trust Co v Wayne Probate Judge, 125 Mich 487, 493; 84 NW 1101 (1901) (the inheritance tax act "as a whole, indicates its character to be a succession or privilege tax, and not a tax upon property”).
The distinction recognized by this Court between *569a direct tax on property and a tax on the privilege of transferring property at death accords with the rule in a majority of jurisdictions. See anno: Statutory provision that speciñed fund or property shall be "exempt from taxation,” "exempt from any tax,” or the like, as exempting such property from estate or succession taxes, 47 ALR2d 999, § 3, p 1003.4 Moreover, in the absence of statutory language which specifically provides an exemption from the inheritance tax, most jurisdictions have held that an exemption will not be implied. Id.
The United States Supreme Court has repeatedly ruled that an estate or inheritance tax is not a direct tax upon property. In Plummer v Coler, 178 US 115, 134-135; 20 S Ct 829; 44 L Ed 998 (1900), the Court declared that a legacy of United States bonds was not exempt from a state’s inheritance tax even though Congress had declared by statute that United States bonds were to be "exempt from taxation in any form by or under state . . . authority . . . .” (Emphasis added.) The Court reasoned that an inheritance tax is not a tax upon the bonds themselves, but instead is a tax upon the right to transfer or receive the bonds at death.
In United States Trust Co v Helvering, 307 US 57, 58; 59 S Ct 692; 83 L Ed 1104 (1939), the Supreme Court held that the proceeds of war-risk insurance were subject to the federal estate tax despite a statutory provision that such proceeds " 'shall be exempt from all taxation.’ ” The Court stated:_
*570An estate tax is not levied upon the property of which an estate is composed. It is an excise imposed upon the transfer of or shifting in relationships to property at death. . . . [T]he taxing power was . . . exercised upon "the transfer of property procured through expenditures by the decedent with the purpose, effected at his death, of having it pass to another.” [307 US 60.]
More recently, in United States v Wells Fargo Bank, 485 US 351; 108 S Ct 1179; 99 L Ed 2d 368 (1988), the Supreme Court held that obligations (project notes) of state and local public housing agencies were not exempt from federal estate taxes despite an enactment by Congress which declared that such obligations "shall be exempt from all taxation now or hereafter imposed by the United States . . . .” 42 USC 1437i(b). The Court observed:
Well before the Housing Act was passed, an exemption of property from all taxation had an understood meaning: the property was exempt from direct taxation, but certain privileges of ownership, such as the right to transfer the property, could be taxed. Underlying this doctrine is the distinction between an excise tax, which is levied upon the use or transfer of property even though it might be measured by the property’s value, and a tax levied upon the property itself. The former has historically been permitted even where the latter has been constitutionally or statutorily forbidden. [485 US 355. Emphasis in original, citation omitted.]
Although, the wording of § 34 makes clear that the Legislature intended to preclude any tax whatsoever "upon the proceeds” of a lottery prize, it cannot be said with a certainty "beyond doubt or cavil” that the Legislature also intended to preclude any tax "upon the transfer” at death of *571entitlement to a lottery prize. See In re Fish Estate, supra. "[I]n all cases of doubt as to the legislative intention . . . the presumption is in favor of the taxing power, and the burden is on the claimant to establish clearly his right to exemption.” St Joseph’s Church v Detroit, 189 Mich 408, 414; 155 NW 588 (1915). In the present case, petitioners fail to cite any legislative history to support their assertion that the Legislature intended to preclude a tax upon the transfer at death of a lottery prize. The rule to be applied under such circumstances was summarized by Justice Cooley in these words:
"An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well-settled principle that, when a special privilege or exemption is claimed under a statute ... it is to be construed strictly against the [claimant] and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation. Exemptions are never presumed, the burden is on a claimant to establish clearly his right to exemption, and an alleged grant of exemption will be strictly construed and cannot be made out by inference or implication but must be beyond reasonable doubt.” [Ladies Literary Club v Grand Rapids, supra at 754 (quoting 2 Cooley, Taxation [4th ed], § 672, pp 1403-1404).]
IV
Because petitioners have not sustained their burden of establishing an exemption, we would hold that the transfer at death of decedent’s entitlement to future lottery payments is subject to *572the state inheritance tax. Accordingly, we would affirm the decision of the Court of Appeals.
Riley, C.J., and Boyle, J., concurred with Griffin, J.

 171 Mich App 296, 302; 429 NW2d 659 (1988). The opinion was authored by Judge Weaver, with the concurrence of Judge Wahls. A dissent was registered by Judge M. John Shamo, Recorder’s Court judge sitting by assignment.

 In general, taxes may be classified as either direct or indirect. A direct tax has been defined as "any tax which is imposed directly on property, according to its value, and ... is generally spoken of as a property tax or ad valorem tax.” 84 CJS, Taxation, § 3, p 37, n 49. An indirect tax is "a tax on some right or privilege or corporate franchise.” Id.

 One court has gone so far as to advance the theory that an inheritance tax is not really a tax at all:
The right to transmit or to receive property by will or through intestacy is not a natural right but a creature of statutory grant. Students of law agree that the State has the right to declare an escheat of all the property of a decedent, and therefore, as the price of allowing a legatee, devisee or heir to inherit, it may appropriate to itself any portion of the property which it chooses to exact. Whether this appropriation be designated an inheritance tax, an estate tax, a succession tax, a death duty, or otherwise howsoever, it is not, in its essence, a tax on the decedent’s property or any component part of it, or on the transaction of transferring it . . . but an excise on the privilege of inheritance. It is really not a tax at all in the ordinary meaning of the word, but rather a distributive share of the estate which the State retains for itself. [Jh re Tack Estate, 325 Pa 545, 548; 191 A 155 (1937). Emphasis in original.]

 In In re Carver Estate, 4 Misc 592; 25 NYS 991 (1893), the court considered whether United States bonds, which are exempt from state taxation by federal statute, are subject to the New York inheritance tax. The court reasoned that the resolution of the issue depended entirely upon whether the inheritance tax was imposed on the tangible substance or corpus of the property itself, or upon the intangible right to acquire and hold such property by succession or devolution. The court adopted the latter view and allowed the tax.