Estate of Morrison

• Citation: 130 Cal.App.3d 543,181 Cal.Rptr. 834
• Court: California Court of Appeals
• Decision Date: 12 April 1982
• Parties: ESTATE OF James Earl MORRISON, Deceased. Kenneth CORY, Controller of the State of California, Appellant, v. Thelma M. MORRISON, Objector and Respondent. Civ. 25720.

Page 834

181 Cal.Rptr. 834

130 Cal.App.3d 543

ESTATE OF James Earl MORRISON, Deceased.

Kenneth CORY, Controller of the State of California, Appellant, v. Thelma M. MORRISON, Objector and Respondent.

Civ. 25720.

Court of Appeal, Fourth District, Division 2, California.

April 12, 1982.

Myron Siedorf, Chief Inheritance Tax Atty., Los Angeles, Margaret Groscup, Asst. Chief Inheritance Tax Atty., and Bettina A. Bate, Asst. Inheritance Tax Atty., Los Angeles, for appellant.

Theodore J. Beall, Santa Ana, for objector and respondent.

OPINION

TAMURA, Associate Justice. ^*

The sole issue on this appeal is whether Revenue and Taxation Code section 13880 offends the equal protection clauses of the federal and state Constitutions because it exempts from state inheritance tax benefits accruing under "any public retirement system" without at the same time extending a like exemption to benefits payable under a private pension plan. ¹

James Earl Morrison worked for Rockwell International and upon his death, his surviving spouse was entitled to a pension of $900 per month, the actuarial value which was calculated to be $125,965. The inheritance tax referee included the pension benefits in the inheritance tax report, exempting one-half as the surviving spouse's community property interest but imposing a tax on the remaining one-half. The surviving spouse filed an objection to the report on the ground that imposition of the inheritance tax on benefits from a private pension plan while exempting such benefits from a public retirement system violated the equal protection clauses of the state and federal Constitutions. The trial court sustained the objection on equal protection grounds and entered judgment decreeing the surviving spouse's benefits exempt from inheritance tax.

The state controller appeals from the judgment contending (1) that private pension benefits are subject to inheritance tax where, as here, the decedent was the employee spouse and (2) that exemption from inheritance tax of benefits from a public pension system without affording a like exemption to benefits under a private pension plan is not violative of equal protection guarantees. For the reasons expressed below, we agree with the state controller.

The right of a surviving spouse to pension benefits under a private pension plan upon the death of the employee spouse is subject to inheritance tax. (Estate of Schley (1979) 100 Cal.App.3d 161, 167, 161 Cal.Rptr. 104.) ² In 1956, the Legislature enacted section 13880 exempting from inheritance tax pension rights under "any public retirement system." (Stats.1956, ch. 2, § 1, p. 121.) No exemption has been provided, however, for benefits accruing under a private pension system. Thus, the question is whether the disparate legislative treatment of benefits under public and private pension systems violates the equal protection clauses of the Fourteenth Amendment and the state Constitution.

In fashioning a scheme of taxation, the Legislature has wide latitude in making classifications and in granting total or partial exemptions on policy grounds. (F. S. Royster Guano Co. v. Virginia (1920) 253 U.S. 412, 415, 40 S.Ct. 560, 562, 64 L.Ed. 989, 991; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 233-234, 149 Cal.Rptr. 239, 583 P.2d 1281; Haman v. County of Humboldt (1973) 8 Cal.3d 922, 925-926, 106 Cal.Rptr. 617, 506 P.2d 993.) "Tax statutes are generally not subjected to close scrutiny, and distinctions can be justified on the basis of administrative convenience and promotion of legitimate state interests." (Haman v. County of Humboldt, supra, 8 Cal.3d 922, 925-926, 106 Cal.Rptr. 617, 506 P.2d 993.) Legislative judgment as to the adequacy of a distinction to justify a classification for tax purposes will not be set aside on equal protection grounds unless it is palpably arbitrary. (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d 208, 234, 149 Cal.Rptr. 239, 583 P.2d 1281; Estate of Mears (1979) 90 Cal.App.3d 885, 889, 153 Cal.Rptr. 566.) " 'Neither due process nor equal protection imposes upon a state any rigid rule of the equality of taxation .... A legislature is not bound to tax every member of a class or none. It may make distinctions of degree having a rational basis, and when subjected to judicial scrutiny they must be presumed to rest on that basis if there is any conceivable state of facts which would support it.' " (Franklin Life Ins. Co. v. State Board of Equalization (1965) 63 Cal.2d 222, 233, 45 Cal.Rptr. 869, 404 P.2d 477, quotingCarmichael v. Southern Coal & Coke Co. (1937) 301 U.S. 495, 509, 57 S.Ct. 868, 872, 81 L.Ed. 1245, 1253; see City of San Jose v. Donohue (1975) 51 Cal.App.3d 40, 45, 123 Cal.Rptr. 804; Ladd v. State Bd. of Equalization (1973) 31 Cal.App.3d 35, 38, 106 Cal.Rptr. 885; Henry's Restaurants of Pomona, Inc. v. State Bd. of Equalization (1973) 30 Cal.App.3d 1009, 1016, 106 Cal.Rptr. 867.)

Pension programs for public employees have been said to serve the dual purpose of inducing persons to enter and continue in public service and providing subsistence for retired or disabled employees and their dependents. (Waite v. Waite (1972) 6 Cal.3d 461, 473, 99 Cal.Rptr. 325, 492 P.2d 13; Phillipson v. Board of Administration (1970) 3 Cal.3d 32, 49, 89 Cal.Rptr. 61, 473 P.2d 765; Bellus v. City of Eureka (1968) 69 Cal.2d 336, 351, 71 Cal.Rptr. 135, 444 P.2d 711.) The state manifestly has a legitimate interest in attracting good employees to public service be it with the state, its political subdivisions or municipalities within the state. Survivors' benefits under a public pension plan are among the most important considerations in a person's decision to enter and remain in public service. Thus, enhancement of such benefits by exempting them from inheritance tax furthers the state purpose of recruiting and retaining employees in public service. Accordingly, insofar as section 13880 exempts benefits accruing under any public employee retirement plan established by the State of California or any governmental agency within California, the exemption furthers a legitimate state purpose and justifies the classification in question.

The section 13880 exemption, however, has been broadly interpreted to extend not only to California public pension plans but to any public pension system, including those established by the federal government or any other state or nation. (Estate of Wyman (1962) 208 Cal.App.2d 489, 25 Cal.Rptr. 280.) Wyman held that section 13880 exempted a survivor's annuity under the Federal Civil Service Retirement Act and in so doing invited the Legislature to amend the statute if the expansive interpretation given to the...