                                                                         R-818


                                    E   ATTORNEY         GENERAL



               PRICE  DANIEL
               ATTORNEYGENERAL




                      Renerable Qeorge
                                   --
                      Comptrolleror PUDl&C AOCounCs
                      hutin, Texas
          ,,
           "                                    Cpinton No. V-402
,..   6
                                                    Re: Whether Inclusion of
                                                        entire community estate
                                                        in determlnlng~ amount
                                                        of Petteral Entote Tax
                                                        clueat death of husband,
                                                        whioh inclurlen inorsrsed
                                                        the taxes paid tJ&eState
                                                        under Ch. 5a, Title 122,,
                                                        V.C.S., prevents a 8taM
                                                        tax Qn the tight te euc-
                                                        oesslon to the wife's
                                                        one-half cosnnunlty ln-
                                                        terest when the wife’8
                                                        death ecaurs wlthln five
                     ..                                 rears from the death of
                                                        the husband


                                                          opinion from this De-
                          gyyent on me above-captnmea.    su+er.   Your
                                                                  ~.  . letter
                                                                         ._.   of
                            ptember 17, 1947, and the l-etteror protest wnlcn ac-
                          cmenies your request apprise us of the following fact8.
                                    During the years of their mafilage John Wil-
                          liam Sanders and Louise Wylie Sanders accumulatedcon-
                          siderable property-. Of this pr~opertywe are c0ncerned
                          ;r%,til;; that which was community property under the
                                      John William Sanders died on December 6,
                          1943* Th; State InheritanceTax return; ,thereafter
                          filed, showed a total gross estate, subject to taxa-
                          tion in the State of Texas, in the amount of $232,122*49,
                          which amount representedthe value of hks one-half of
                          the community estate. The State tax subsequentlypaid
                          in accordancewith the provisions of Chapter 5, Title 122,
                          V.C.S., was in the amount of $3,177.61.
                                              -.
                                                   .   .




HonoabPe George H, Sheppard, laga 2 (V-402)
.   .




        Xonorable George Ii.Sheppard, Page 3 (V-402)


                 Section 8 a?   Artlble   7144a reads a6 follou8:
                  "~ectlons 1 to '7, inclusive, of this
            Chapter shall alwaya be construed so as not
            te increase the total amount of taxes pay-
            able to the State and the Federal Gevern-
            nent combined upon the ,estateso? decedents,
            the only purpose of said additional tax be-
            ing to take full advantage of the eighty
            (80$) per cent credit allowed by the Federal
            Revenue Act of 1926, to those why,have paid
            0ny e8tate, fnhetitunce;legacy'j+& 8uccea-
            elen tax te any State or territory Or to the
            Dlrtrlct of Columbia, In respect to any prop-
            erty included In the decedent's gross estate.
            Aots 1933, 437% Leg., p. 581, eh. 192, II2a.'

                  Article 125 Is found In Chapter 5 of Title
        122 and Article 71?42 constItute'sChapter5a of Title
        122. The history, the theory, and the basis of the tax
        iarposedin these two chapters Is entirely different.
        The basic provislens of Ohapter,,,5    enacted br the
                                          :poere
        Legislature In 1923. Chapter"fWe:impose8 a tax en
        vg property withfn the ~url,sdlitlon  of this State,
              and any interest therein,       which shall pass
        absoiutely or in trust by will or by'the laws of de-
        8Cent or bfsttibutlonof this . . . State. * . In ac-
        cordance wlth,the following clas8lfieatlon;~. . .'I
        The taxes ao fmposed “are held to be privilege taxes,
        and notpropertytaxer, In other words, the tax Is
        uizFIP;Alht    of succeesionand not up,onthe property,"
                    d " t on value or amount of the estate
        but on the valu%f or amount of property passing to
        a particular class of parties." State v. Ro~q, 72
        S.W. (2d) 593.

                  These taxes were the only "death" taxes of
        any kind imposed by the State until 1933. In that
        year the Leglslature enacted Article 7144a In order
        to take advantage of the eighty er cent credit pro-
        vision embodied in Section 301(bP Ch. 27 of the
        Federal Revenue Act of 1926. The'full provisions of
        the present Federal Estate Tax Act are found In the
        Internal Revenue Code, Ch. 3,   Title 26, U.S.C.A.
                  The first Federal death taxes were iaposed
        in 1797. This Act was repealed in 1802. Other acts,
        both relatively short-lived,Intervened before the
        adoption of the Federal InheritanceTax Act of 1898,
                                                          .   .




Honorable George If.Sheppard, Pa@? 4 (V*)


which, ln turn, was repealed in 1902. In 1916 C-s8
Imposed a tax-dffferent
the Act of 1898 In that the tax fs on "the eurois
the leg@ sower of trantmfssionof property b     Ill er
dwaceut. . ." rather than on "the legal privi:ek of
tam.pmperty     by devise or descent.” Stebbins t.
ROlem 268 U.S. 137. This tax Is In the awn of vary-
inc
  - umxfntores
    -~          of the value of the deoedent’s net
estate--hen& the term %ttate" Tax.
          both the old inheritancetax law and the 1916
estate tax law were unsucceasfulfy~attacked  as an %a-
vaslon oi the.powsr of the States to regulate the Wan@-
misslon of property by death. Knowlton v. Moore, 178
U.S. 41; New York Trust Co. v. Bisner, 25% U S 345.
Rut even though these attacks failed, the dik&lSfae-
tion nith the Federal Qovernment's "lnvaslonwof this
field of taxation remained; and in 1924 the first
"credit"provlslon,which allowed deduction of the
State Inheritanceand estate taxes In an amount not
to exceed~~twenty-five per cent of the Federal tax,
was passed. Rev. Acts of 1924, 8 301(b). The Reve-
nue Act of 1926, R 301(b) Increased the amount of
"credit" to efghty per cent. This eighty per cent I.8
still measured by the rates as fixed by the 1926 Act,
although there have been several increases in the Fed-
eral rates since that time. Sec. 81.9, U.S. Tres. Reg.
105.
          The word9ng of the "cPedIt"prwiefon lx8the
Federal act requires that the estate, inheritance,let-
aey OP suecessiontaxes must have been actually a     te
the State before the taxpayer may deduct the %mfmat of
such Stzte taxes from the total Federal Estate Tax.
Rouse P. U.S., 65 Ct. Cl. (Fed.) 749, CePtfomrl Imle(i,
278 UJ.S.638; 49 Sup. Ct. Rep, 32. Thus if the full
amount of the ellghtyper cent credit Is not taken up
by the State tax, the taxpayer's "credit" fs reduced
accordinglyXpth the result that he pays the same over-
all aaount PegardlerJsof the eventual dispositionof
that amount between the Stat@ and the Federal Qwern-
ment.
          After the enactment of this provlaie% mO8t
of the states whose existfng laws dfd not result ia a
tax sufficfentto equal the full einountof the eighty
per cent "credit"passed Peglslatfonrequfsfte to that
end* Texas was among such states and the proviafons
eontalned In ArtfePe 71440, Ch, 5a, R.C.S., became a
Honorable   ffeorge H. Sheppard, Page 5 (V-402)


part of our laws in 1933. The chapter.~ltself Is en-
titled “Additional InhirltanoeTees.” Likewise var-
IQUB sections of A&cle 7144a Tefer to the “lnherl-
tame tax. . . ,herebgimp&cd. . .‘Ietc., despite the
wording of Section 1 to the effect that there Is here-
by levied an “Inheritanceand transfer tax” In addl-
tion to the Inheritancetax already levied. However,
regardless of the tenainologyused, the tax as lmpoeed
by Article 714&a Is an entirely different tax from the
taxes levied by Chapter 5* As we have previously
pointed out,.the taxes Imposed by Chapter 5 are levied



                      ~~~~___
as. Lonicallr and actuallv  It resta on the same barls
as the parent” F&e&    Act. It;could rest on no ether;
for, although‘it levies aidlr.eottax, the amount of,
that tax la In a,fixed percen%age of a total amount
previously determinedby~the Federal Act in accordance
rith the 1926 rates less the inheritance taxes paid
under State law. Therefore the provisions of the Fed-
eral law, not the prov$sgionsoi, the,Texas law, deter-
mine every step to be tiUs+14#h&&mput~ngthe total tax
         After the total tax ham been’ircertained,   the
~~keps      in By virtue of A~rtlele 71,448to,claim the
differenoe,betweenthe 8~1 of Inheritancetaxes due
under Chapter 5 and the ,elgh$yper cent of the tetal’
sum of the estate tax lmpesed U$ the ,I926Revenue Act
“by reason OS the property of suoh estate whichis
situated In this State and taxable under the laws of
this State.”
           When the Federal Government taxed the entire
community estate on the death OS the husband, of course
It did so by virtue of Sectien 811c/)(2),Title 26,
U.S.C.A., which was enacted lm1942. This Section pre-
vides Sor the inclusion In the gross estate of a dece-
dent all OS the community property held by the decedent
and the surviving spouse with the exception of such
part as may be shown to have been received as compensa-
tion for personal services actually rendered by the
.survlvlngspouse or derived originally Prom such corn-’
pensatlon or f&m separate property of the surviving
        . There is a Surther provlro to the eSfect that
 Eroase     shall the Interest Included In the gross en-
tote of the decedent be less than the value of such
part OS the community property as was subgeot t&khe
decedent’spower of testamentarydlspssltlOn.

c-~
              I




llonerable George H. Sheppard, rage 6 (V-402)


con6titutlonallty    of this Section woe upheld In Feman-
de% v. Wiener, 66 5. Ct. 178, and IJI U.S. v. l&ii-6
    ct  191     As a result, State consunity pr erty laws
r~oelie onip a llmltcd rbcotnltlon In the fle“1 d of Fed-
era1 taxation.     When the additional tax was imposed by
virtue of Chapter 50, obviously the top figure of elgbty
per cent wae derived from the proper total figure of the
Federal tax.     only ln this way could the State take full
advantage of the Federal credit provision,     and such 18
the announced lntent of the State statute.      The taxpay-
er’r burden wae not increased at that time a8 had he
not paid the difference between the State tex au aeeem-
ed under Chapter 5 and said eighty par cent of the Fed-
eral tex he would hove paid the difference te the United
Stater Qovemment. In *ate v. Wiese, 173 S,W. (24 IW,
after pointing eut that fn w event the 6ane tieunt 16
paid by the taxpayer, the Ceurt said,      “We are unable
to eee hew such a law can vlelate any part lf cur Cen-
etltutl6m.”     Seme court6 have eaid that by rcauen ef
this lack ef ln,jury the taxpayer Us ne sts;lrdlng te
even questfen the aonstltutlenallty    of a atatute enact-
ed fcr the purpose of tak3.q advantage 6f the credit
allowed by the Federal Act O
145, Atf, 7Yl. Im Amy event
did net prdo8t the payment
mount lf which was necessar1Pg lncreared by the Fed-
era1 Qevemaent @e lm%ue%en ln the @em eatate lf the
value of an estate which, under the Texoe Paw, wae n&
ewned by t&e husband.
           We camot 8ee that the actlam ef the Fedemtkol
Qevepmemt ln taxlsy the entire cemunlty at the death
of the huBband preventer the State f’~em taxfay the right
ef ruccesslen t* the wlfeae share of the cmlty        on
her death.
          Sectlen 8 ef Art%cDe 7X44o, ppapieU8J.y
quoted, deee net preclu4e thla metit.        OCvleuely~
Sectlen 8 wa6 meant to apply $0 taxem due en the Wane-
fer ef od euccessfen to me decedent@e estate0         At the
time ef the &eath of the -band     the total   mount ef
taxes payable to the State and to the Federal (hvem-
meat wan net increased a0 a reeu~t   of
ceatafned in Sectlone 8-7 sf Article
toma cenuet new be applied to @bviate taxes accrui4
cm the suwesmf*n tc the estate of a dlf~ere& dece-
dent O Mereever i,n this came as ts taiis estate and this
deaedent there is ne Federal tax $ti~tlhe      WiSeBIB0s
half of the cmunftg     estate warntaxed %esrsthan five
Honorable George Ii.Sheppard, Page 7 (V-402)


years before. T.D. 5408, Cum. Bull, 1944, p. 578.
Consequentlythere 1s no additional State tax due un-
der Chapter 5a and no Increase on a “combined”pay-
ment to the State and the Federal Government.
          This brings us to a considerationof the sec-
ond ground of protest, l.e.,that under the provisions
of Article 7125, Ch. 5, deduction should be allowed for
the wife’s community.lnterestas property previously
taxed within five years. B..ttby the exact wording of
Article 7125 there may be deducted only the value of
such property a8 was ‘receivedfrom any person who
dies within five (5) years prior to the death of the
decedent” with the further proviso that the deduction
“shall be only in the smount of the value of the prop-
erty upon which an inheritancetax was actually Bald.
        The wife did not receive her share from her
&band at his death. Unm           !kbxas
                                       law she owned
the one-half undivided interest at that time. Her
one-half of the communitywas not taxed under any of
the provisions of the Texas InheritanceTax statutes
as contained In Chapter 5; so as to this property no
Inheritancetax.was actually paid.   These provisions
of Article 7125 clearly show that the deduction which
is allowed is for property previously taxed by virtue
of the provisions of Chapter 5. In the absence of
specific proviso, allowable deductions as to payments
made under Chapter 5@ are found only In that chapter
or accomplishedIndirectly through provisions of the
Federal Act.
          The radical difference in the nature anil
basle of the taxes imposed by Chapter 5 and the tax
lmpqsed by Chapter 5a, which differencewe discussed
at length at the outset of this opinion, in itself
prevents the transpositionof provisions from one act      ”
and application to another. A good deal has been
written about 811(e)(2) and its effect on the tax-
payer in community-propertystates. See Tax Magazine,
Jan., 1947, p. 64; Feb., 1947, p. 130 for articles dls-
cussing various aspects of the unequal and confisca-
tery results In the Federal tax field that have
sprung from a measure obviously Intended to equalize
Federal estate taxes rather than to penalize the tax-
payer in community-propertystates. One writer char-
acterizes such results as flowing from the impact of
jurisprudenceupon the statute. As to the lnequali-
ties that are inherent in the Federal law the States
are powerless;but if, as a matter of policy, the
HonorableQeorge B. Sheppard, rage 6 (V-402)


people of Texas desire to reduce the tax burden on the
passing of communityproperty by a reduction ln State
InheritanceTaxes, legislativeaction Is necessary. In
a very excellent article, “Aftermathof the Hebst and
Weiner Decisions,” 24 T.L.R. 437, Mr. Winstead points
out that in most cases, the entire community estate Is
attributableto the husband, and that in the usual
case, assuming that the phrase “compensationfor per-
sonal services” includes all types of property ‘eco-
nomlcally attributableto the survivor,” the entire
coxmnuiltwill be taxed only when the husband dies
first0 9Otherwise,aa provided by Section 811(e)(2)
previously summarlsed,the amount attributableto the
surviving spouse up to the amount over which he had
the power of testamentarydisposal would not be in-
cluded in the gross estate.) Therefore, the situation
covered by the Instant case, In which relief could be
afforded by a change in the State law, is a narrow
one which normally will arise only when the wife out-
lives the husband by a period of less than five years.
The 1947 Oklahoma Legislaturepassed an act which
eliminates from the gross estate the survlv
                                     ---I+y apprargorlate
share in communityproperty. It 1s only         Bpowe’8
legislativeaction that an exemption of the kind here
sought can be created. Such exemption may not be ac-
complishedby implicationfrom inapplicableprovisions
on the theory that the Legislaturewould have Intended
some such provision to apply g It coda have foreseen
this particular contingency.
          The result urged by the taxpayer in this
care would therefore rest on supposltion,not law; Pnd,
in addition, would be predicated on a complete aisre-
gara of Texas property law fn tha% there would be no
recognitionof the passing of the wifeus coss4unlty    ln-
terest at her death nor of the receipt of that interest
by others. It 1s the privilege of such receipt whfch
Is expressly taxed by the provisions of Chapter 5. You
are therefore advised that the tax as assessed and paid
under protest was lawfully cwea the State of Texas by
virtue of the provisions of Chapter 5, Title 122, R.C,S.
