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
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    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.




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            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
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            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.
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       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
