Bank of Commerce & Trust Co. v. McLemore

• Decision Date: 07 February 1931
• Parties: BANK OF COMMERCE & TRUST CO. v. McLEMORE et al.
• Court: Tennessee Supreme Court

35 S.W.2d 31

162 Tenn. 137

BANK OF COMMERCE & TRUST CO. v. McLEMORE et al.

Supreme Court of Tennessee.

February 7, 1931

Appeal from Chancery Court, Shelby County; M. C. Ketchum, Judge.

Bill by the Bank of Commerce & Trust Company, administrator with the will annexed of the estate of Annie S. Fargason, deceased against John C. McLemore and others. Decree for complainant and defendants appeal.

Affirmed.

F. S Hall and Wm. C. Cook, both of Dickson, for appellants.

Holmes Canale, Loch & Glankler, of Memphis, for appellee.

MCKINNEY J.

By the original and amended bills complainant seeks to enjoin the officials of the state from making an illegal inheritance or succession tax against the estate of Annie S. Fargason.

The questions involved were raised by demurrers, which the chancellor overruled. Defendants elected to stand upon their demurrers and declined to further plead; whereupon the chancellor decreed that the temporary injunction, theretofore granted, be made permanent. The defendants have appealed and assigned errors.

Annie Snowden Fargason died testate on October 13, 1924. She named her husband, John T. Fargason, executor of her will, but he declined to qualify; whereupon complainant was appointed administrator cum testamento annexo, and duly qualified.

The gross value of Mrs. Fargason's estate was $1,619,882.27, which consisted of money, stocks, bonds, and numerous lots and tracts of land.

In order to file a report giving the value of the estate, in compliance with chapter 46, Public Acts of 1919 (as amended), it was necessary for complainant to employ experts to appraise said property, which it did at a cost of $335.43.

On March 31, 1925, complainant filed with the county court clerk of Shelby county an itemized inventory of said estate, which report contained the gross market value of each item.

On April 13, 1925, the county court clerk filed his written report, in which he fixed the taxable clear market value of the estate at $1,119,742, and upon that valuation computed the tax to be $48,562.10. Upon that day complainant paid said tax, less a discount of 5 per cent. authorized by the act of 1919.

On June 9, 1925, the commissioner of finance and taxation filed exceptions to said report, and commissioners were appointed to reappraise the estate, but they had taken no action when the original bill was filed herein on November 18, 1925.

In arriving at the clear market value of the estate, the county court clerk deducted three items, which are the basis of the errors assigned in this court, viz.: (1) The expense item of $335.43, referred to above; (2) the federal estate tax of $128,057.42; and (3) four pieces of real estate valued at $249,300, which Mrs. Fargason received by devise from her mother, Mrs. Annie B. Snowden, who died in 1923, and on which property inheritance taxes were duly paid by the estate of Mrs. Snowden. It is conceded that this last item was properly deducted if chapter 64, Acts of 1925, is valid.

By the first and fifth assignments of error, the jurisdiction of the chancery court to determine the questions involved is challenged. It is insisted that the remedy provided by the act of 1919 should have been resorted to, viz., have an appraisal by the commissioners, appeal from their decision to the railroad commission, and thence by certiorari to the circuit court.

It will be observed that no questions of fact are involved; the value placed upon the estate by the clerk is not challenged; but the questions raised are altogether legal and relate to the action of the clerk in deducting the three items, referred to above, in arriving at the clear market value of the estate.

These assignments of error are without merit, for it has long been held by this court that the chancery court has jurisdiction to enjoin the making of an illegal assessment. Hamilton Nat. Bank et al. v. Shipp, 160 Tenn. 311, 23 S.W.2d 667; Tennessee Fertilizer Co. v. McFall, 128 Tenn. 647, 163 S.W. 806; Southern Express Co. v. Patterson, 122 Tenn. 279, 123 S.W. 353; Smoky Mountain, etc., Co. v. Lattimore, 119 Tenn. 620, 105 S.W. 1028; Briscoe v. McMillan, 117 Tenn. 126, 100 S.W. 111; Bank v. Memphis, 107 Tenn. 72, 64 S.W. 13; Alexander v. Henderson, 105 Tenn. 431, 58 S.W. 648; Ward v. Alsup, 100 Tenn. 746, 46 S.W. 573; National Bank v. Chattanooga, 8 Heisk (55 Tenn.) 814.

The second assignment of error complains of the action of the chancellor in holding the federal estate tax deductible.

The act of 1919 has been expressly repealed by chapter 29, Acts of the Extra Session of 1929, which latter act expressly provides that in computing the state tax the federal estate tax shall not be deducted. The act of 1919 does not expressly refer to the federal statute. The decided weight of authority holds that, in the absence of an express provision to the contrary, the estate tax should be deducted.

The cases in which this question has been considered have been collected in the American Law Reports Annotations. In volume 44 A. L. R. page 1461, some of the cases are listed, and reference is there made to other volumes where previous decisions can be found. Different reasons are given in support of both the majority and the minority rule.

The federal estate tax statute was enacted in 1916 (39 Stat. 777). Presumably the members of the Legislature were familiar with it when they passed the act in question in 1919. The Legislature could have easily provided for the inclusion of this tax in computing the state tax.

In view of the previous decisions of this court, we are of the opinion that the act of 1919 was not intended as a strict estate tax, as that term is defined in the authorities, but rather as an inheritance or succession tax. This court, in construing previous statutes of this character, had held repeatedly that the tax was one imposed upon the beneficiary for the privilege of acquiring the estate by succession. State v. Alston, 94 Tenn. 674, 30 S.W. 750, 28 L. R. A. 178; English v. Crenshaw, 120 Tenn. 531, 110 S.W. 210, 17 L. R. A. (N. S.) 753, 127 Am. St. Rep. 1025; Knox v. Emerson, 123 Tenn. 409, 131 S.W. 972; Crenshaw v. Moore, 124 Tenn. 528, 137 S.W. 924, 34 L. R. A. (N. S.) 1161, Ann. Cas. 1913A, 165.

In these cases it was further held that such statutes must be strictly construed against the state and in favor of the taxpayer.

Since the beneficiary only receives that part of the estate which is left after deducting the federal tax, it seems unjust to require him to pay a tax on something he never becomes the owner of.

There is no substantial difference between previous statutes and that of 1919. In previous acts the requirement was "that all estates" are subject to a tax. If these acts were given a technical or literal construction, it might be argued with plausibility that they were estate statutes, but this court held them to be inheritance or succession statutes.

The act of 1919 provides that a tax is imposed "upon every transfer of property," when the transfer is by will or by the intestate laws of the state; "and the person to whom the property is so transferred and the executor, administrator or trustee of every estate so transferred, shall be personally liable for said tax until it is paid." In other words, the beneficiary is personally liable for a tax upon the property received. Since he can never receive the money paid in satisfaction of the federal tax, he should not be charged with a tax thereon.

The statutes of Kentucky (Ky. St. § 4281a1) and Massachusetts (G. L. c. 65, § 1) provide that "all property which shall pass by will or by intestate laws of this state *** shall be *** subject to a tax." A "transfer of property" and a "passing of property," as used in such statutes, mean substantially the same thing. In holding the federal tax deductible the Supreme Court of Massachusetts, in Hollis v. Treasurer & Receiver General, 242 Mass. 163, 136 N.E. 162, 163, 23 A. L. R. 850, 851, speaking through Chief Justice Rugg, said:

"It is plain as a practical matter that the amount of money so paid for excise taxes never passes to anybody by succession from the deceased resident. Money so paid is a pecuniary burden laid for the support of government upon the privilege of transmitting and receiving property by will or by intestate succession. A succession tax law ought not to be so interpreted as to exact an excise of the succession of that which in fact cannot pass to any beneficiary because seized by the state on its way from the dead to the living, unless the words of the statute leave no other alternative. Newcomb v. Paige, 224 Mass. 516, 113 N.E. 458. Such a tax, apart from its technical legal significance, would be in substance and effect a tax on a tax and not a tax on the succession of property."

The Court of Appeals of Kentucky, in Bingham's Adm'r v. Commonwealth, 196 Ky. 318, 244...