Department of State Revenue, Inheritance Tax Div. v. Estate of Hardy

• Decision Date: 09 December 1998
• Docket Number: No. 09T10-9710-TA-00180,09T10-9710-TA-00180
• Citation: 703 N.E.2d 705
• Parties: DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant, v. ESTATE OF Avis HARDY, Appellee.
• Court: Indiana Tax Court

Page 705

703 N.E.2d 705

DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant, v. ESTATE OF Avis HARDY, Appellee.

No. 09T10-9710-TA-00180.

Tax Court of Indiana.

Dec. 9, 1998.

Jeffrey A. Modisett, Attorney General, Kathryn Symmes Kirk, Andrew L. Hedges, Deputy Attorneys General, Indianapolis, for Appellant.

Donald J. Tribbett, Scott L. Starr, Starr Austen Tribbett & Myers, Logansport, for Appellee.

FISHER, Judge.

The Department of State Revenue (Department) appeals an adverse ruling by the Cass Circuit Court (probate court) denying its petition to redetermine the amount of inheritance tax due. The sole issue to be decided is whether the probate court properly concluded that the surviving joint tenant owed no inheritance tax upon exercising his right of survivorship to real property because he had contributed 100% of the purchase price of the property.

FACTS AND PROCEDURAL HISTORY

The relevant facts of this case are not in dispute. Dale Hardy and his sister, Avis Hardy, the decedent, owned real property as joint tenants with right of survivorship. Dale had paid 100% of the purchase price of this property. When Avis died on June 16, 1995, her interest passed to Dale.

On August 25, 1995, a supervised estate proceeding was commenced for the decedent's Estate (Estate). On June 17, 1996, the Estate filed its Indiana Inheritance Tax Return with the probate court. According to the return, $12,449.97 in inheritance tax was due. On October 16, 1996, the Department filed a Petition for Rehearing, Reappraisement and Redetermination of Inheritance and Transfer Tax. The petition alleged, inter alia, that Dale owed inheritance tax on the exercise of his survivorship rights to the subject real property. On June 9, 1997, the probate court denied the Department's petition. The instant appeal ensued.

ANALYSIS AND OPINION

Standard of Review

This Court has jurisdiction to review an appeal from the final determination of a probate court concerning the amount of Indiana inheritance tax due. See IND.CODE ANN. § 6-4.1-7-7 (West Supp.1998). In its review, the Court acts as a true appellate tribunal. See Department of Revenue v. Estate of Phelps, 697 N.E.2d 506, 509 (Ind.Tax 1998). Accordingly, the Court affords the probate court's factual findings a great deal of deference. See id. However, the Court reviews the legal conclusions of the probate court de novo. See id. (citing Haseman v. Orman, 680 N.E.2d 531, 533 (Ind.1997)).

Discussion

The Indiana inheritance tax statutes impose a tax on the privilege of succeeding to certain property rights of deceased persons. See IND.CODE ANN. § 6-4.1-2-1 (West 1989); Estate of Phelps, 697 N.E.2d at 509; Estate of Hibbs v. Department of State Revenue, 636 N.E.2d 204, 207 (Ind.Tax 1994); Department of State Revenue v. Estate of Roberts, 571 N.E.2d 1334, 1335 (Ind.Ct.App.1991). The tax is imposed, not on the property itself, but rather on the transfer of ownership of the property. See Estate of Hibbs, 636 N.E.2d at 207; Estate of Roberts, 571 N.E.2d at 1335. One transfer subject to Indiana The Estate contends that the fact that Dale contributed 100% of the purchase price of the subject property means that 100% of the property "belonged to" him, thereby making his exercise of the right of survivorship not subject to Indiana inheritance tax. The Department argues that prior to the decedent's death, Dale, as a joint tenant, held the property "by the half and by the whole." Estate of Roberts, 571 N.E.2d at 1336 (quoting Clausen v. Warner, 118 Ind.App. 340, 344, 78 N.E.2d 551, 552 (1948), trans. denied.). Consequently, 50% of the subject property "belonged to" the decedent and 50% "belonged to" Dale. Under section 6-4.1-2-5, this means that the transfer of the decedent's interest to Dale would be taxed based on 50% of the value of the subject property.

                inheritance tax is the exercise of survivorship rights in cases of jointly held property.  See IND.CODE ANN. §§ 6-4.1-2-4, -5 (West 1989);  State v. George, 273 Ind. 26, 401 N.E.2d 680, 683 (1980);  Estate of Roberts, 571 N.E.2d at 1335.   The value, for purposes of the Indiana inheritance tax, of property transferred by the exercise of the right of survivorship "equals the remainder of (1) the total value of the jointly held property, minus (2) the value of that portion of the jointly held property which the surviving joint owner or owners prove belonged to him or them."    IND.CODE ANN. § 6-4.1-2-5
                

The resolution of this dispute turns on the meaning of "belonged to" as it is used in section 6-4.1-2-5. In George, the Indiana Supreme Court had occasion to evaluate the operation of IND.CODE § 6-4-1-1 (1971) (repealed 1976), ¹ which was a predecessor to section 6-4.1-2-5. In George, the decedent received real property from his parents. Fourteen years prior to the decedent's death, the decedent conveyed the property to himself and his sister, Elsie, as joint tenants with right of survivorship. When the decedent died, Elsie exercised her survivorship right and took title to the property in fee simple. Elsie claimed that 50% of the value of the property was not subject to taxation because she had given good and valuable consideration for her one-half interest in the property.

The Indiana Supreme Court agreed. In reaching its conclusion, the George Court noted that the inheritance tax law excluded transfers for which good and valuable consideration had been given. George, 401 N.E.2d at 683. Therefore, because Elsie had given good and valuable consideration for her one-half interest in the property, the George Court held that she was only subject to taxation on 50% of the value of the property. ²

It is important to note that nowhere in the George Court's analysis is there any mention of the fact that, at the time of the decedent's death, Elsie held the subject property by half and by the whole and that half of the property, as a matter of real property law, "belonged to" her.

The George Court also went on to state that prior to the decedent placing the property in his and Elsie's name, there was "a great deal of merit" to Elsie's contention that the property "actually did belong to her." Id. In reaching this conclusion, the George Court noted that Elsie and the decedent lived on the property and "farmed it together as a fifty-fifty proposition" for thirty-two years prior to the time the decedent placed the property in both of their names and that this arrangement continued for another fourteen years until the decedent's death. Id. Had the George Court only considered real property law, this conclusion would have been impossible because, prior to the conveyance by the decedent to Elsie, the decedent was the sole title holder. Once again, the George Court thought it proper to look to the underlying facts and circumstances of the case, rather than the operation of real property law, to analyze the case.

Eleven years after the Indiana Supreme Court's decision in George, the Indiana Court of Appeals issued its decision in Department of State Revenue v. Estate of Roberts, 571 N.E.2d 1334 (Ind.Ct.App.1991), which discussed the application of the current statutory provision. In Roberts, a third party conveyed real property to Roberts (the decedent) and Groomer (the survivor) as joint tenants with rights of survivorship. When the decedent died, the property passed to the survivor. The inheritance tax return only listed half of the value of the property as subject to the inheritance tax. The Department contested this treatment, arguing that the entire value of the property was subject to the inheritance tax because there was no evidence concerning the contribution of the survivor toward the property.

The Roberts Court disagreed. At the outset of its analysis, the Roberts Court stated that section 6-4.1-2-5 "clearly placed the burden on [the survivor] to prove that one-half of the jointly held property 'belonged to him.' " Id. at 1336. In addition, the Roberts Court observed that section 6-4.1-2-5 is silent as to "what type and how much evidence is sufficient to carry this burden." Id.

The Roberts Court then examined the nature of the joint tenants' interests in the property as a matter of real property law. As joint tenants, the decedent and the survivor each held the property "by the half and by the whole." Id. Both the decedent and the survivor were free to sell or mortgage their respective one-half interest to a third party. Because neither party had done so, the survivor acquired the property in fee simple upon the decedent's death. Accordingly, "[o]nly one-half of the property's value transferred to [the survivor] upon [the decedent]'s death; therefore, only one-half of the property's value [was] subject to inheritance tax." Id. The Roberts Court then held that the warranty deed evidencing the conveyance was sufficient to establish that prior to the decedent's death, "an undivided one-half interest in the subject real estate 'belonged to' [the survivor]." Id. at 1336-37.

In finding that only one half of the value of the property was subject to tax, the Court of Appeals looked to real property law to determine what portion of the property "belonged to" the surviving owner. This creates some tension with the Supreme Court's analysis in George because the George Court did not look to real property law, but rather the facts and circumstances of the case, in order to determine how much of the jointly held property "belonged to" the survivor. Perhaps sensing the tension between Roberts and George, the Roberts Court distinguished George in that in George, the decedent had previously owned the property in fee simple This particular case is not on all fours with either George or Roberts. As a result, this Court does not have the liberty of simply following either George or Roberts, assuming, of course, that Roberts is not inconsistent with George. Instead, this Court must choose between looking to the factual circumstances of this case and...