Comptroller of Treasury v. Jameson

• Decision Date: 01 September 1993
• Docket Number: No. 16,16
• Parties: COMPTROLLER OF the TREASURY v. Mary JAMESON & W. Ronald Jameson, Personal Representatives of the Estate of Mary Louise Jameson. ,
• Court: Maryland Court of Appeals

Page 723

332 Md. 723

633 A.2d 93

COMPTROLLER OF the TREASURY v. Mary JAMESON & W. Ronald Jameson, Personal Representatives of the Estate of Mary Louise Jameson.

No. 16, Sept. Term, 1993.

Court of Appeals of Maryland.

Nov. 22, 1993.

Gerald Langbaum, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., John K. Barry, Asst. Atty. Gen.), all on brief, Annapolis, for appellant.

John C. Heisler (C. David Heisler, Heisler, Williams & Lazzaro) all on brief, Towson, for appellee.

Argued before MURPHY, C.J., ELDRIDGE, McAULIFFE, CHASANOW, KARWACKI and ROBERT M. BELL, JJ., and CHARLES E. ORTH, Jr., Judge of Court of Appeals (retired), Specially Assigned.

MURPHY, Chief Judge.

We granted certiorari in this case to consider whether the State of Maryland may collect interest on the late payment of Maryland estate taxes where a subsequent payment of Maryland inheritance taxes eliminates the original estate tax liability.

I

This case involves the complex interplay among the Maryland estate tax, the Maryland inheritance tax, and the federal estate tax. Because the terminology is critical to an understanding of the facts and issues presented in this case, we will first provide a brief overview of the three taxes and explain how the taxes are interconnected.

The United States imposes a federal estate tax which is payable nine months after death. See 26 U.S.C.A. §§ 2001 et seq., 6075(a) (West 1989 & Supp.1993) ("I.R.C."). On the federal estate tax return, estates are permitted to claim a credit, up to a specified amount, for state death taxes actually paid to any of the fifty states. See I.R.C. § 2011. This credit is a method of revenue sharing in which the federal government is diverting some federal estate tax revenue to the states.

The Maryland inheritance tax is a tax imposed on the privilege of receiving property. See Maryland Code (1988) § 7-202 of the Tax-General Article. Although the executor of the estate is initially responsible for the inheritance tax, the ultimate liability usually falls upon the beneficiary as the executor either pays the tax with a portion of the beneficiary's inheritance or with money collected directly from the beneficiary. See id. § 7-216. The inheritance tax is paid to the Register of Wills in the county where the court that administers the estate is located, id. §§ 7-214, 7-215, but the tax is not due until the property is distributed from the estate. See id. § 7-217. The Maryland inheritance tax is not integrated with the federal estate tax; in other words, the calculation of the Maryland inheritance tax is not dependent upon the federal estate tax system in any way.

On the other hand, the Maryland estate tax is completely integrated with the federal estate tax. The structure of the Maryland estate tax is referred to as a "pick-up" tax. This means that, if the federal credit for state death taxes allowable by the Internal Revenue Code exceeds the Maryland inheritance tax, an estate must pay Maryland estate tax to pick up the difference between the credit and the state inheritance tax. Stated more succinctly, the inheritance tax is deducted from the federal estate tax credit to determine the amount of Maryland estate tax. By providing for full use of the federal credit for state death taxes, the Maryland estate tax statute shifts taxes that would otherwise be paid to the federal government to the state treasury. In contrast to the Maryland inheritance tax, the executor pays the Maryland estate tax to the State Comptroller and pays the estate tax directly from the decedent's estate. At the applicable time in the instant case, the Maryland estate tax was due fifteen months after death. See Maryland Code (1957, 1983 Repl.Vol.) Art. 62A, § 3. ¹

It is with an understanding of the foregoing principles that we consider the following question: May the State of Maryland collect interest on the late payment of estate taxes where a subsequent payment of inheritance taxes obviates the original estate tax liability?

II

Mary Louise Jameson (the "Decedent"), a resident of Charles County, Maryland, died on August 9, 1987. Pursuant to § 6075(a) of the Internal Revenue Code, Decedent's federal estate tax return was due nine months after the date of her death, on May 9, 1988. Under the applicable state law at that time, the Decedent's Maryland estate tax return was due fifteen months after her death, on November 9, 1988. See Maryland Code (1957, 1983 Repl.Vol.) Art. 62A, § 3. ² The Maryland estate tax return, however, was not filed by this date.

On March 28, 1989, Appellees, W. Ronald Jameson and Mary Cecelia Jameson, Personal Representatives of the Estate of Mary Louise Jameson (the "Estate"), paid to the Register of Wills for Charles County collateral inheritance tax in the amount of $5,100.00. The Estate also paid to the Register of Wills for Charles County collateral inheritance tax in the amount of $192,363.23 on October 2, 1990; thus, a total of $197,463.23 in inheritance taxes was paid.

Decedent's federal estate tax return was under audit from September, 1989 through August 31, 1990. The Internal Revenue Service issued a federal estate tax closing letter on August 31, 1990. As noted above, under the federal estate tax laws, an estate may claim a credit on the federal estate tax return for state death taxes paid to a state. In the instant case, the Decedent's Estate claimed a state death tax credit in the amount of $143,321.00, which was the maximum allowable state death tax credit available to the Estate.

The Personal Representatives finally filed the Decedent's Maryland estate tax return on January 10, 1991. The Maryland estate tax return indicated, on line 10, that the Estate utilized the maximum credit for state death taxes reflected on the federal return in the amount of $143,321.00. As noted on the Maryland estate tax return on line 5, the percentage of the Decedent's Maryland estate to the Decedent's total gross estate was 80.7%. Consequently, the portion of the state death tax credit allocable to Maryland was $115,660.00. The Maryland estate tax return also showed a payment of Maryland collateral inheritance tax in the amount of $197,463.00.

As explained above, the inheritance tax is deducted from the federal estate tax credit allocable to Maryland to determine the amount of Maryland estate tax owed to the State. In this case, because the inheritance tax greatly exceeded the state death tax credit allocable to Maryland, the Maryland estate tax return developed a Maryland estate tax liability of zero.

On January 14, 1991, the Comptroller submitted a bill to the Estate for $26,202.54 in interest on unpaid Maryland estate tax from November 9, 1988, the due date of the Maryland estate tax return, to March 28, 1989 and October 2, 1990, the dates of the two payments of Maryland inheritance tax. ³ The Estate failed to pay the bill, however, and the Comptroller formally assessed the Estate for the interest on February 14, 1991.

The Estate appealed to the Maryland Tax Court. On November 19, 1991, the Maryland Tax Court affirmed the Comptroller's assessment. The tax court filed a Memorandum and Order wherein it stated that the issues in the case were "identical to those [presented] in the Estates of Sophie N. Chaney and Betty L. Bock, Miscellaneous Nos. 747 and 748." ⁴ The tax court adopted the Memorandum of Grounds for Decision that it filed in the Chaney and Block case and upheld the Comptroller's assessment of interest.

The Estate appealed to the Circuit Court for Charles County. On January 11, 1993, the circuit court issued an Opinion and Order wherein it reversed the Maryland Tax Court's decision. Relying on this Court's decision in Page v. Comptroller, 270 Md. 725, 313 A.2d 691 (1974), the circuit court concluded that the Comptroller improperly assessed interest against the Estate. Although the circuit court acknowledged that Article 62A, § 2, the applicable Maryland estate tax statute, had been substantially amended after Page, the court concluded that "if the legislature intended to repeal Page, they could have done so in more explicit language."

The Comptroller timely filed an appeal to the Court of Special Appeals. We issued a writ of certiorari prior to intermediate appellate review to address the confusion that exists in the area of state death taxes, 330 Md. 154, 622 A.2d 1195.

Before us, the Estate basically presents two arguments. First, it maintains that under this Court's decision in Page, supra, the Comptroller may not collect interest on Maryland estate tax due when inheritance taxes that are due--though unpaid--would eliminate the estate tax liability. This argument is primarily based upon the Estate's contention that the Page holding is still the controlling law in our state even though § 2 of Article 62A was amended in response to the Page decision. Second, the Estate argues that because inheritance taxes had not been paid as of the due date of the Maryland estate tax return, no federal credit for state death taxes was allowable and, therefore, no Maryland estate tax liability could have arisen.

III

The Estate heavily relies upon this Court's decision in Page, supra, in support of its assertion that the State of Maryland may not "collect interest on the computation of Maryland estate tax payable by a decedent's estate when said tax liability is, in fact, satisfied by the timely payment of inheritance taxes, at a time more than fifteen (15) months after the death of the decedent." We agree with the Estate that the issue before the Court in Page is virtually identical to the issue before us today. Page framed the issue as follows: "whether the State may collect interest on that portion of the Maryland estate tax payable by a decedent's estate which was not paid until final distribution of the estate, at a time more than 15 months after the death of the decedent." 270 Md. at 726, 313 A.2d 691.

In Page, the decedent died on August 27, 1967. On November 22,...