Bishop Trust Co. v. Burns

• Decision Date: 25 March 1963
• Docket Number: No. 4173,4173
• Citation: 46 Haw. 375,381 P.2d 687
• Parties: , 46 Haw. 474 BISHOP TRUST COMPANY, Limited and Samuel W. Wilcox, Executors of the Estate of Elsie Hart Wilcox v. Edward J. BURNS, Director of Taxation of the State of Hawaii.
• Court: Hawaii Supreme Court

Page 687

381 P.2d 687

46 Haw. 375, 46 Haw. 474

BISHOP TRUST COMPANY, Limited and Samuel W. Wilcox Executors of the Estate of Elsie Hart Wilcox v. Edward J. BURNS, Director of Taxation of the State of Hawaii.

No. 4173.

Supreme Court of Hawai'i.

March 25, 1963.

Rehearing Denied May 17, 1963.

SYLLABUS BY THE COURT.

1. The burden of showing that an act of the legislature is unconstitutional is upon the party asserting it.

2. Constitutional questions raised by a person not affected by alleged unconstitutional construction of a tax statute will not be considered. Constitutional questions involving the construction of a tax statute are not to be dealt with abstractly. They will be passed upon only when their decision becomes necessary to a decision in the case.

3. The purpose of the legislature in enacting the statutory provision imposing a tax on inter vivos transfers intended to take effect in possession and enjoyment at or after the death of the transferor is to prevent the avoidance of the inheritance tax by reaching transfers analogous or akin to testamentary dispositions.

4. An inheritance tax imposes the tax on the right or privilege of a beneficiary of receiving or succeeding to property upon the death of the prior owner rather than on the transmission of the benefits of property as in the case of an estate tax.

5. Succession being the taxable incident, the inheritance tax (R.L.H.1945, § 5552, as amended, now R.L.H.1955, § 122-2) applies whenever actual succession, possession and enjoyment takes place at, is dependent upon and is brought about by, or is withheld until the death of the transferor.

6. The test of taxability is not whether there is a complete divesting of the transferor's interest or ownership at the time of the execution and delivery of the instrument of transfer or whether he reserved some interest or power until his death but rather whether complete succession takes place at or after his death.

7. It is not necessary to the validity of the inheritance tax that the transferred interest in property pass directly from the transferor at the time of his death. In principle there is no difference between property passing by an instrument intended to take effect in possession and enjoyment after the death of the donor and the same property passing by will. As far as succession by the donee is concerned, whether the donor has reserved a life use for himself or has withheld a use measured by his life for the benefit of another, it takes place only at or after the death of the donor.

8. Where securities were transferred in trust by donor prior to her death by trust instruments which completely divested her of all title to and control over both income and principal and made distribution to her nephews and nieces contingent upon her death, the transfer was subject to the inheritance tax as a transfer 'intended to take effect in possession or enjoyment after [the death of the donor] * * *.' R.L.H.1945, § 5552, as amended (now R.L.H.1955, § 122-2).

9. It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of the legislature, the language used therein is to be taken in the generally accepted and usual sense. Courts will presume that the words in a statute were used to express their meaning in common usage. This principle is equally applicable to a tax statute.

10. The rule of strict construction in favor of the taxpayer is only resorted to as an aid to construction when an ambiguity or doubt is apparent on the face of the statute, and then only after other possible aids of construction available to resolve the ambiguity have been exhausted.

Harold S. Wright and J. Russell Cades, Honolulu (Smith, Wild, Beebe & Cades, Honolulu, on the briefs), for plaintiffs-appellants.

Nobuki Kamida, Deputy Atty. Gen. (Shiro Kashiwa, Atty. Gen., Honolulu, with him on the brief), for defendant-appellee.

Before TSUKIYAMA, C. J., CASSIDY and WIRTZ, JJ., HEWITT, Circuit Judge, in place of LEWIS, J., disqualified, and TASHIRO, Circuit Judge, in place of MIZUHA, J., disqualified.

WIRTZ, Justice.

This case involves the liability for inheritance taxes under R.L.H.1945, Chapter 103, as amended (now R.L.H.1955, Chapter 122 ¹), on account of the transfer hereinafter outlined. On January 7, 1960, the parties to this proceeding filed in this court, pursuant to R.L.H.1955, § 227-1 ², an Agreed Statement of Facts and requested this court to determine the question in difference. This statement set out, in substance, the following facts:

On February 21, 1938, Elsie H. Wilcox transferred certain shares of stock to Bishop Trust Company, Limited, as trustee, under an instrument which directed the trustee to pay the net income of the trust to the 'Elsie H. Wilcox Foundation,' a charitable trust, for and during her lifetime, and from and after her death to pay the net income, in equal shares, to certain named nephews and nieces or their lawful surviving issue, and upon default of issue, to the surviving nephews and nieces and their lawful surviving issue. The trust was to terminate twenty years after the death of the last survivor of the named nephews and nieces and at that time the trust property, together with all accumulated income, was to be distributed to the persons who were then entitled to the income of the trust. In the event, however, that all of the surviving issue of the named nephews and nieces should die prior to the expiration of the twenty year period, the trust would cease upon the death of the last of such surviving issue and the trust property would pass to those persons who would be the heirs at law of Miss Wilcox as if she had died intestate at that time. It was further provided that the settlor 'shall have no power to revoke this Trust, nor to amend or alter the provisions hereof.'

Previously, the charitable trust known as the 'Elsie H. Wilcox Foundation' had been created by Miss Wilcox on February 15, 1938, by deed of trust which provided that the trust was organized and was to be operated 'exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals,' and that 'no part of the net earnings of this trust shall inure to the benefit of any private shareholder or individual.' The trust could not be 'changed, amended or modified at any time * * * to prevent the application of the entire net income and principal of any of the property now or hereafter becoming subject to this trust from being applied and used solely for public charities ³ * * *.'

After the death of Elsie H. Wilcox on June 30, 1954, the plaintiffs were duly appointed executors of her estate. Thereafter, the defendant ⁴ assessed against the plaintiffs under R.L.H.1945, § 5552, as amended (now R.L.H.1955, § 122-2), and R.L.H.1945, § 5556 (now R.L.H.1955, § 122-6 ⁵), on account of the property transferred under the trust indenture of February 21, 1938, additional inheritance taxes and interest in the aggregate sum of $14,606.37 based on a valuation of the trust property of $238,490.51 and distributed according to law and the trust indenture among the heirs and legatees. The plaintiffs paid the amount of such additional inheritance taxes in the amount assessed, together with interest thereon, in the total amount of $14,606.37 ⁶. This amount was paid on June 7, 1956, to the defendant under an escrow agreement by the terms of which the defendant ⁷ agreed to hold the amount of the disputed taxes pending the determination of the controversy and to pay it over in accordance with the judgment entered by this court.

It is the contention of the defendant, under the submission, that R.L.H.1945, § 5552, as amended (now R.L.H.1955, § 122-2), 'compels the imposition of the tax assessed on the ground that the entrusted property or an interest in or income therefrom was transferred by the said trust indenture of February 21, 1938 to the respective remaindermen, intended to take effect in possession or enjoyment after the death of the donor.' On the other hand, the contention of the plaintiffs is 'that the entrusted property is not subject to the taxes imposed by Section 5552 because the transfer irrevocably divested the settlor of all right, title and interest in the property, and the transfer was not 'intended to take effect in possession or enjoyment after such death' within the meaning of the statute.'

Under these contentions the question in difference as submitted is 'whether the property entrusted under the terms and conditions of the aforementioned trust indenture of February 21, 1938 is subject to inheritance taxes imposed by Section 5552, Revised Laws of Hawaii 1945, as amended, (now Section 122-2, Revised Laws of Hawaii 1955), * * *.'

The pertinent portion of R.L.H.1945, § 5552, as amended (now R.L.H.1955, § 122-2), provides:

'Sec. 5552. Tax imposed when, generally. All property which shall pass by will or by the intestate laws of the Territory, from any person who may die seized or possessed of the same which a resident of the Territory, or which, being within the Territory, shall pass, whether by the laws of the Territory or otherwise, from any person who may so die while not a resident of the Territory, or which or any interest in or income from which, shall be transferred by deed, grant, sale or gift, made in contemplation of the death of the grantor, vendor, or bargainer, or intended to take effect in possession or enjoyment after such death, to any person or persons, or to any body politic or corporate, in trust or otherwise, or by reason whereof any person or body politic or corporate shall become beneficially entitled, in possession or expectancy, to any property, or to the income thereof, shall be and is subject to a tax hereinafter provided for, to be paid to the tax commissioner of the Territory, as hereinafter directed, for the use of the Territory; * * *.'

The above quoted language of R.L.H.1945, § 5552...