D'Amico Estate, In re

• Decision Date: 04 September 1990
• Docket Number: Docket No. 84290
• Citation: 435 Mich. 551,460 N.W.2d 198
• Parties: In re D'AMICO ESTATE. Joseph LENTINI and Samuel D. D'Amico, Copersonal Representatives, Petitioners-Appellants, v. DEPARTMENT OF TREASURY, Respondent-Appellee. 435 Mich. 551, 460 N.W.2d 198
• Court: Michigan Supreme Court

Page 198

460 N.W.2d 198

In re D'AMICO ESTATE Joseph LENTINI and Samuel D. D'Amico, Copersonal Representatives, Petitioners-Appellants, v. DEPARTMENT OF TREASURY, Respondent-Appellee.

Docket No. 84290.

435 Mich. 551, 460 N.W.2d 198

Supreme Court of Michigan.

Argued Dec. 5, 1989.

Decided Sept. 4, 1990.

[435 MICH 552] Rhoades, McKee, Boer, Goodrich & Titta by Peter A. Titta, Grand Rapids, for petitioners-appellants.

Frank J. Kelley, Atty. Gen. by Russell E. Prins, Richard R. Roesch, Asst. Atty. Gen., Lansing, for respondent-appellee.

OPINION

LEVIN, Justice.

The question presented is whether annual installments of a Michigan state lottery prize, unpaid at the winner's death are exempt from the inheritance tax ¹ under a provision of the Lottery Act ² providing that no state or local tax "of any kind whatsoever shall be imposed upon the proceeds from a prize" awarded by the state lottery. We hold that state lottery prize proceeds, including the right to transfer and receive an inheritance of such proceeds, were so exempt.

I

Rose D'Amico won a state lottery prize entitling her to $1,000,000 payable in twenty annual installments of $50,000. Fourteen installments were unpaid when she died in March, 1981.

The inheritance tax examiner, in accordance with the Department of Treasury's eleven-year practice of not seeking to tax state lottery proceeds, did not include the lottery proceeds in the December, 1981, calculation of the inheritance tax. The tax was redetermined in April, 1986, after a September, 1983, Department of Treasury decision to seek to collect inheritance tax on the transfer of the right to receive future installments of a decedent's lottery winnings. The additional tax sought to be imposed is $13,527.70.

The probate court ruled that state lottery proceeds were not, before the 1988 repeal of the statutory provision exempting state lottery proceeds from the imposition of tax, subject to inheritance tax. ³ 1988 P.A. 516. The Court of Appeals reversed, stating that the exemption was for a "direct" tax on property and did not apply to a tax on the privilege of transferring or receiving property by inheritance. ⁴

II

The United States Supreme Court held in 1900 that legislation exempting securities issued by the United States government from taxation did not exempt the securities from federal estate or state inheritance taxation. ⁵ State court cases generally adopt the analysis employed by the United States Supreme Court. ⁶

Judicial opinions so holding draw a distinction, adopted by the Court of Appeals and in the dissenting opinion, between a "direct" and an "indirect" tax, and distinguish between a direct tax on property or income and a tax on the "privilege" of transferring or receiving property, and sometimes explain their results by characterizing an estate or inheritance tax as an excise tax.

The courts so holding also invoke, as did the Court of Appeals and the dissent, rules of construction disfavoring exemption from taxation. ⁷

The most telling rule of construction, however, is often a court's teleological assessment of the consequences of one construction as opposed to another, as appears from the seminal decision of the United States Supreme Court in Plummer v. Coler, 178 U.S. 115, 138, 20 S.Ct. 829, 838, 44 L.Ed. 998 (1900), where an underlying policy is stated:

"It is often impracticable to secure from living persons their fair share of contribution to maintain the administration of the State, and such [inheritance tax] laws seem intended to enable to secure payment from the estate of the citizen when his final account is settled with the State. Nor can it be readily supposed that such obligations can be evaded or defeated by the particular form in which the property of the decedent was invested." (Emphasis added.)

Were the United States Supreme Court to have held that United States government securities were exempt from estate and inheritance taxation, persons whose wealth is in liquid form--cash, checking, or savings accounts, or marketable securities--could, in anticipation of death, have invested the bulk of their fortunes in tax-exempt United States government securities and thereby avoided all estate and inheritance taxation of wealth in that form. The Court undoubtedly correctly assessed the matter in concluding that the Congress did not intend such a result when it exempted United States government securities from taxation.

The policy concern identified in Plummer does not obtain where lottery proceeds are involved. While a lottery winner expends money in purchasing lottery tickets there is no "investment" or transfer of wealth, in the sense referred to in Plummer, in purchasing a lottery ticket, and no need, by judicial construction, to guard against avoidance, beyond the policy of the statute, of estate and inheritance tax.

I acknowledge that United States Trust Co. v. Helvering, 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104 (1939), cannot be explained on the policy basis suggested. There the exemption was of life insurance proceeds, apparently payable ex gratia, by the United States to veterans of World War I. The Court observed that the rule distinguishing between a direct and indirect tax, and the excise distinction, had been well established, before enactment of the legislation providing the life insurance benefit, since 1900 when Plummer was decided. ⁸

III

This Court has not heretofore considered the question dealt with in Plummer. There is no decision of this Court holding that a legislative exemption from taxation applies only to direct taxes, or that an indirect or excise tax on the right or privilege of transferring or receiving property is not included within an exemption from taxation. ⁹ There not having been a ruling by this Court establishing the law in Michigan, the department's eleven-year practice of exempting lottery proceeds from inheritance tax on the basis of a ruling by the Attorney General takes on, in our opinion, decisive significance.

A

The letter, dated October 5, 1977, advising of the first, contemporaneous construction of the lottery tax exemption from taxation, stated:

"The Attorney General's Department, Revenue and Collections Division, Mr. Richard R. Roesch Assistant in Charge, has ruled that lottery winnings are not subject to any Michigan tax which, of course, includes inheritance tax." (Emphasis added.) ¹⁰

In 1983, the department announced that it would no longer adhere to that ruling. ¹¹

B

This Court has held that "the construction placed upon a statute by the agency legislatively chosen to administer it is entitled to great weight." Davis v. River Rouge Bd. of Ed., 406 Mich. 486, 490, 280 N.W.2d 453 (1979).

A leading treatise on statutory construction states:

"Interpretations and application of regulations by officers, administrative agencies, departmental heads and others officially charged with the duty of administering and enforcing a statute have great weight in determining the operation of a statute. The greatest weight attaches to an administrative interpretation in favor of parties who have reasonably relied upon it." 2A Sands, Sutherland Statutory Construction (4th ed.), Sec. 49.05, p. 362. (Emphasis added.)

"One of the soundest reasons sustaining contemporaneous interpretations of long standing is the fact that the public has relied on the interpretation .... While the principle here is not strictly that of estoppel running against the government there is some analogy to that principle when the interpretation has been made by a government agency or officer." Id., Sec. 49.07, p. 394. (Emphasis added.)

The United States Court of Appeals for the Third Circuit said:

"Deference to the Attorney General's interpretation of the [Kentucky Consumer Protection] Act is particularly appropriate here because the interpretation is adverse to his best interests in this litigation." In re Glenn W. Turner Enterprises Litigation, 521 F.2d 775, 779 (CA 3, 1975). (Emphasis added.)

In holding that promissory notes were not debentures within the meaning of a statute that imposed a stamp tax on "all bonds debentures, or certificates of indebtedness issued by any corporation," the United States Supreme Court said:

"Against the Treasury's prior longstanding and consistent administrative interpretation its more recent ad hoc contention as to how the statute should be construed cannot stand." United States v. Leslie Salt Co., 350 U.S. 383, 396, 76 S.Ct. 416, 100 L.Ed. 441 (1956). ¹² (Emphasis added.)

The United States Court of Appeals for the Second Circuit in Jandorf's Estate v. Comm'r of Internal Revenue, 171 F.2d 464 (CA 2, 1948), declined to apply the direct/excise/privilege/transfer tax distinction for, among other reasons, the department's longstanding policy of construing the statute at issue in that case ¹³ as granting an estate tax exemption for United States government bonds owned by nonresident aliens. ¹⁴ Both the instant case and Jandorf's Estate may be contrasted with United States v. Wells Fargo Bank, 485 U.S. 351, 353, 108 S.Ct. 1179, 1181, 99 L.Ed.2d 368 (1988), a case cited by the department in support of the direct/excise/privilege/transfer tax distinction. The Court there noted that

"[f]or almost 50 years after the Act's passage, it was generally assumed that this [the provision of the Housing Act of 1937 exempting project notes from all taxation imposed by the United States] exempted the Notes from federal income tax, but not from federal estate tax."

The unbroken assumption regarding the construction of the exemption in Wells Fargo Bank was thus the opposite of that operating in Jandorf's Estate and in the instant case.

C

For over a decade, the department construed Sec. 34 of the Lottery Act as exempting state lottery prize proceeds from inheritance taxation. Persons who bought lottery tickets during the regime when the department and field examiners were administering the inheritance tax law as exempting...