Untitled Texas Attorney General Opinion ( 1960 )

Honorable Robert 3. Calvert Opinion No. W-922
Comptroller of Public Accounts
Capitol Station Re: Taxability for Inheritance
Austin 11, Texas tax purposes of bequest
In trust to the United
States to be used for the
retirement of the National
Dear Mr. Calvert: Debt.
In connection with your request on the above captioned
matter, we have been advised of the following facts.
Mrs. Susan Vaughan Clayton died testate January 7, 1960.
By her will she exercised a general power of appointment which
by the express terms of Article 14.01, Ch. 14, Title 122A,
Revised Civil Statutes,1 is subject to tax unless within one of
the allowable statutory exemptions.
The specific bequest, which Is the subject of your request,
is couched in the following terms:
“I direct that any’income from the
Susan Vaughan Clayton Trust No. 2 . . .
be paid for the period provided in the
Instrument creating said Trust, aa
follows:
“(a) One-half (l/2) of such income
to my bsloveu country, the United States
of America, to be used for the retirement
of the National Debt. . . .I’
Two articles of Chapter 14 specifically deal with the
method of computing the tax on property passing to or for the use
of the United States. Article 14.03-Class B relates solely to
l”All property within the jurisdiction of this State. and any
interest therein, including property gaaalng under a general
power of appointment exercieed by the decedent by will, . . shall
upon passing to or for the use of any person, corporation, or
association, be aubject’to a tax. . An accordance with the
following claesifloatlon; . . . .‘I
Honorable Robert 3. Calvert, Page 2 (Opinion No. WW-9221
property passing to or for the use of the United States and reads,
In part, as follows:
“If passing to or for the use of the
United States, to be used in this State,
the tax shall be one per cent (1%) of any
value In excess of Twenty-five Thousand
Dollars ($25,000), and not exceeding
Fifty Thousand Dollars ($50,000); Two per
cent (2%) on any value in excess of Fifty
Thousand Dollars ($50,000) and not ex-
ceeding One Hundred Thousand Dollars
($100,000); . . . .‘I
Thereafter the rates continue to increase in stated
brackets reaching a maximumof 6% on any value in excess of
$1,000,000.
Article 14.06-Class E - Foreign Bequests reads, in part,
as follows:
“If passing to or for the use of the
United States, to or for the use of any
other person or religious, educational
or charitable organization or Institution,
or to any other person, corporation or
association not included in any of the
classes mentioned in the preceding portions
of the original Act known as Chapter 29 of
the General Laws of the Second Called
Session of the Thirty-Eighth Legislature,
the tax shall be:
“5% on any value In excess of $500
and not exceeding $10,000; 6s on any
value in excess of $10,000 and not
exceeding $25,000; . . .‘I
Thereafter the rates contlnue,.to increase according to
stated brackets reaching a maximum of 20% on any value in excess
of $1,000,000. Article 14.06 also contains the following
provision:
“Provided, however, that this Article
shall not apply on property passing to or
for the use of the United States, or to or
for the use of any religious, educational
or charitable organization, incorporated,
unincorporated or in the form of a trust,
when such bequest, devise or gift is to be
-
Honorable Robert S. Calvert, Page 3 Opinion No. WW-922
used within this State. The exemption
from tax under the preceding provisions
of this Article shall, without limiting
Its application under other appropriate
circumstances, apply to all or so much
of any bequest, devise or gift to or for
the use of the United States, or a
religious, educational or charitable
orzanization, which is, in writing and
prior to the payment of the tax, lrre-
vocably committed for use exclusively
within the State of Texas or transferred
to a religious, educational or charitable
organization for use exclusively within
this State.”
We quote the following from a letter from William B.
Butler, United States Attorney for the Southern District of
Texas bye Norman W. Black, Assistant, dated July 13, 1960,
addressed to Honorable Robert 3. Calvert, State Comptroller
of Public Accounts:
“I have informed the Department of
Justice (and they have informed the
Secretary of the Treasury) that Article
14.06 offers a possibility whereby the
United States could legally avoid the
payment of State Inheritance Taxes on
this Trust (the tax Is estimated at
approximately $400,000.00). The
Secretary of the Treasury has suggested
the following arrangement, whereby
the income from the bequest by the
late Mrs. Clayton could be used ex-
clusively within the State of Texas for
the retirement of the National Debt.
That proposed arrangement Is aa follows:
“‘The Treasury would make special
arrangements to receive within the State
of Texas moneys representing income de-
rived from the Susan V. Clayton Trust
No. 2 and would maintain them in a separate
account in the name of the Treasurer of the
United States In the State of Texas and
not intermingle them with any other funds
of the United States. Such moneys would
be used solely to redeem public debt ob-
ligations presented to the Treasury for
redemption in the State of Texas.
Honorable Robert S. Calvert, Page 4 Cpinion No. WW-922
“‘Specifically, the moneys would be ip
paid to the United States at the Federal
Reserve Rank of Dallas, Texas, for credit
to the Treasurer of the United States.
The Treasurer would maintain a special
deposit account with the Federal Reserve
Bank for these particular moneys. Thl s
account would be separate from the
account now maintained by the Treasurer
with the Federal Reserve Bank of Dallas
for General operating purposes. The
moneys thus received In Texas and held on
deposit with the Federal Reserve Dank of
Dallas would be identified specially on
the books of the Treasury to be available
for retirement of the national debt.
From time to time, as public debt ob-
ligations are presented to the Federal
Reserve Bank of Dallas for redemption
by that Bank as fiscal agent of the ‘.%
United States, the Treasury would direct
the bank to redeem such obligations from
the moneys held on deposit in the special
account representing the Income from
the bequest. I”
We have reached the conclusion that the proposed arrange-
ment does not satisfy the requisite use within the state contem-
plated by either Article . 14.03 or 14.06, --. and therefore
. _ It is
unnecessary to resolve tne apparent conflict between tnese two
articles. We have reached this conclusion in view of the
following cases.
In San Jaointo Nat. Bank v. Sheppard, 125 S.W.2d 715
(Tex.Civ.App. 1939) the court was concerned with the question
of whether a bequesi.to a foreign, non-profit corporation for
religious, benevolent and educational purposes was entitled to
exemption under Article 7122, R.S., as amended by Acts 42nd
Leg., Reg. Ses., Ch. 72, p. 109. The statute provided for exemp-
tion of property devised to a religious, educational, or charl-
table organization or lnstitutlon located within this ‘State”
and to be used within this State. The court states that it was
clear that the term “located” was used by the Legislature in
the sense of residence or domicile and also manifested an intention
to require even a domestic corporation in order to claim a more
favorable exemption to use a devise or gift within the State.
Not only was the foreign corporation located in Ohio,, said the
court, but the will did not require the funds derived irom the
devise to be used In Texas; Hence exemption could not be accorded.
.
. . .
Honorable Robert S. Calvert, Page 5 Opinion No. WW-922
The court pointed out that the exemption only of domestic
corporations was sustained for the reason that in such a case
the state can exercise its power of visitation and control only
over domestic corporations and quoted with approval the following
excerpt from Humphreys v. State, 70 N.E. 957, 961:
“It is the policy of society to
encourage benevolence and charity, but
it is not the proper function of a state
to go outside its own limits, and devote
its resources to support the cause of
religion, education, or missions for the
benefit of mankind at large.”
The court also quoted with approval from United States in
Board of Education v. Illinois, 203 U.S. 553 (lgbb) as follows:
“This power [to make classifications
for tax purposes on the basis of foreign
and domestic CorporationsJis not uncon-
stitutionally exercised by legislation which
exempts the religious and educational ln-
stitutions of the state from an inheritance
tax and subjects educational and religious
Institutions of other states to the tax.
Regarding alone the purposes of the instl-
tutions, no difference may be perceived
between them, but regarding the spheres of
their exercise, and the benefits derived
from their exercise, a difference is
conspicuous.”
In Presbyterian Church in U. S. v. Sheppard, 198 S.W.2d
282 (Tex.Civ.App. error ref. n.r..e.) the court was concerned
with Article 7122, V.C.S., which proGided an exemption for
“property passing to and for the use of the United States or any
religious, educational or charitable organization, when such
bequest, devise or gift is to be used within this State."
The decedent had devised certain properties to the
Presbyterian Church in the United States. No limitation as to
use was expressed in the will. Subsequent to decedent I s death,
and prior to the assessment of the tax, the Church through Its
governing officials legally obligated itself to use the bequest
in its entirety within the State of Texas for religious purposes.
Exemption was denied on the grounds that the requisite limitation
as to use did not exist as of the date of death, and that such
limitation could not be later supplied to effectuate exemption.
At page 284 the court said:
Honorable Robert S. Calvert, Page 6 Opinion No. WW-922
“The manifest purpose of the statute
is to exempt a devise or bequest passing under
a will from the payment of the tax imposed
only when such devise or bequest Is to be
used in this State. The statute specifically
so provides.”
In G. A. C. Halff Foundation v. Calvert,281 S.W.2d
178 (Tex.C!iv.App., 1953, error ref. n.r.e.), the decedent
by will provided that a certain portion of the residue of
his estate should be distributed to a charitable corporation,
association, or trust fund to be selected by the trustees
named in the will. After the death of the testator, a charitable
corporation was formed; and the use of its property and resources
was by the terms of its corporate charter limited to charitable
purposes within the State of Texas. In discussing the exemption
provision of Article 7122, V.C S., as the statute then stood and
its requirement that the bequest, devise or gift be used within
the state, the court said:
.The Legislature has thus decided
that the greater good may be served by
exempting certain property from taxation,
considering the use to which it is dedicated.
A use of property which alleviates a burden
which the State or its political subdivisions
would otherwise necessarily bear at public
expense, or a use thereof which fulfills or
accomplishes the generally accepted charita-
ble objectives of the people of the State, is
recognized as a proper subject of tax exemp-
tion by specific legislative enactments.”
Exemption was allowed on the basis that the will had
created a power of appointment rather than a trust and that since
under the old common-law doctrine of relation back, title is
deemed to pass directly from the donor of the power, the requisite
llmitatlon as to use within the state was actually in existence
at the time of death.
We think that the foregoing decisions demonstrate that the
“use” contemplated by the statute Is a direct, actual.use within
the State for the benefit of and limited to Its citizens. We do
not think that this requisite use can be satisfied by the mere
retention In the State of funds devised for the retirement of
the national debt. Any benefit which the residents of this State
would receive under the proposed arrangement would be at best an
Incidental benefit shared equally with all of the residents of all
. . -
Honorable Robert S. Calvert, Page,7 Opinion No. WW-922
other forty-nine states.
Since it is well settled that a state may subject a
legacy to the United States to an Inheritance tax,2 you are
advised that an Inheritance tax should be assessed upon
the bequest under consideration according to the exemption
and ratesset ~lorth in Article 14.06~Class E.
SUMMARY
A bequest in trust to the United
States to be used for the retire-
ment of the National Debt is not
exempt from inheritance taxes
which should be assessed under
the provision of Article 14.06-
Class E, V.C.S.
E8Un;ted States v. Durnison, 339 U.S. 87; Willcuts v. Bunn,
2 S 216; Greiner v. Lewellyn 258 U.S. 384. United
State; ;. Perkms, lb3 U S 623; +&ate Tax CommiSm.
Baokman, t93 Utah 424, 55’Pid 171.
Anno: 47 ALR2d 1010.
.~ .
Honorable Robert S. Calvert, Page 8 Opinion No. WW-922
Yours very truly,
WILL WILSON
Attorney General of Texas
MMcGP:jip
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
Paul W. Floyd, Jr.
Raymond V. Loftin, Jr.
William H. Pool, Jr.
.. .
REVIEWEDFORTHE ATTORNEY
GENERAL
By: Houghton Brownlee