        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 approx-
    1   imately $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:
                                                *..                   :       .,
\                            " 'If the beneficiar       dies before attain-
                             ing twenty-one (21 T years of age, upon ,,
                             the beneficiaryIs       death, such Trust
                             shall terminate and such Trust Estate
                             shall be distributed        to such one or-
                             more 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 dls-
                             tributed 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-
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         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 dis-
         tributed 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 sub-
         ject 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. ”                     ,~    .’
_-                                   the decedent but subject,      upon passing,
         f~~~“K;;;d;~““(“1T          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 pro-
                 visions   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.
Sim‘co v. Shirk, 144 Tex. 259* 206 S.W.2d 221 (1947); Sinnott v.                      :
Gldna
--         1:i9x.      366, 322 S.W.2d 507 (1959).       Articles    15.01
a 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 of-
transfer.      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 enact-
ment of Chapter 15 conclusively       establishes    the nature of the
tax.    For a good many years there had been considerable         opposi-
tion 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 tax-
payer was allowed "credit"     for State taxes paid on transfers        of
pro erty which were within the scope of the Federal law.             The
258 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 Govern-
                 ment 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  714fi 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 follow-
I             At the death of a husband, a tax in the amount of
$Y%,g%       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.  53 Tex.
        Jur.26 259-264, Sec. 177.
              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-
