In re Bass' Estate

• Decision Date: 02 December 1947
• Docket Number: Case Number: 31845
• Citation: 1947 OK 362,200 Okla. 14,190 P.2d 800
• Parties: In re BASS' ESTATE
• Court: Oklahoma Supreme Court

1947 OK 362

190 P.2d 800

200 Okla. 14

In re BASS' ESTATE

Case Number: 31845

Supreme Court of Oklahoma

Decided: December 2, 1947

Syllabus

¶0 1. TAXATION - Estate tax levied on transfers testamentary as substitute for inheritance tax.

By article 5, ch. 66, S.L. 1935, an estate tax was levied upon the transfer of property by the death of the owner, and was intended as a substitute for the inheritance tax levied by O.S. 1931 §§ 12469-12497, upon the right of the beneficiary to take property by reason of the death of the owner.

2. SAME - Transfer would have been taxable under inheritance tax law then in effect if grantor had died while section of statute governed.

Where the owner of property transferred it in trust for his children in 1930, reserving the income during his natural life but no reversion or possibility of reverter or the right of revocation, such transfer would have been taxable under the inheritance tax law then in effect, section 12469, O. S. 1931, if the grantor had died while that section was the governing statute.

3. SAME - Transfer of beneficial use and enjoyment by the death of donor taxed, and not prior transfer of legal title.

The estate tax provided by article 5, ch. 66, S.L. 1935, was intended to apply to transfers where the legal title was transferred prior to its enactment but the donor or grantor reserved the income during his lifetime and died after the effective date of the act. The event or occurrence taxed was the transfer of the beneficial use and enjoyment by the death of the donor or grantor, and not the prior transfer of legal title.

4. SAME - CONSTITUTIONAL LAW - Levy of estate tax in substitution for inheritance tax not violative of either State or Federal Constitution.

The levy of the estate tax under article 5, ch. 66, S.L. 1935, where the legal title was transferred prior to its enactment and the grantor or donor reserved the income from the property transferred during his lifetime but died subsequent to its enactment, and where the estate tax was intended as a substitute for the inheritance tax in effect when the legal title was transferred, and under which the transfer was taxable, does not violate the contract clause, equal protection clause or due process clause of either the State or Federal Constitution.

Appeal from an order of the Oklahoma Tax Commission assessing estate taxes against estate of D.C. Bass, deceased. Order affirmed.

Simons, McKnight, Simons, Mitchell & McKnight, of Enid, for plaintiff in error.

E.L. Mitchell and C.W. King, both of Oklahoma City, for defendants in error.

HURST, C.J.

¶1 On January 1, 1930, D.C. Bass and Sophia Bass, his wife, as first parties, and their seven children, as second parties, executed an instrument in writing referred to as "Declaration of Trust", whereby they created an irrevocable trust designated as "The Bass Estate". The Declaration of Trust provided that D.C. Bass should convey his property to the trust; that there should be a board of directors of the trust consisting of Bass and the seven children; that Bass should be the president of the board and the general manager of the trust estate; that he should receive all the net income from the estate during his lifetime for the use and benefit of himself and wife; that in the event of his death prior to the expiration of the trust, his interest in the estate should thereby be extinguished and the income from the trust estate should be divided equally among the seven children; that the trust should exist for 20 years from January 1, 1930; and that upon the expiration of said term of 20 years the trust estate should be wound up either by sale and division of the proceeds among the children as beneficiaries or the property should vest in the beneficiaries, as the trustees should decide.

¶2 On the day the Declaration of Trust was executed, Bass conveyed the property to the trust entity. He reserved no reversionary interest or possibility of reverter in the property so conveyed. Mrs. Bass died within a year after the execution of the Declaration of Trust, and Bass died on December 10, 1938. On May 6, 1944, pursuant to due notice, and after a hearing at which the facts were agreed upon by a written stipulation, the Oklahoma Tax Commission made an order assessing a transfer tax against the estate of D.C. Bass including in the gross estate that property embraced in the Declaration of Trust made on January 1, 1930, and calculating the assessment in accordance with article 5, ch. 66, S.L. 1935, p. 274.

¶3 It was stipulated that the Declaration of Trust was not made in contemplation of death; that no administration proceedings have been had upon the estate of Bass; and that he died intestate, leaving as his sole heirs at law his seven children, who signed the Declaration of Trust. From said order of the Oklahoma Tax Commission, Henry B. Bass, son of D.C. Bass, deceased, as representative of his estate has appealed.

¶4 Appellant contends (1) that the question of whether a death duty could be assessed based upon the value of the property so transferred must be determined by a consideration of the law in force in 1930 when the transfer was made, O. S. 1931, sections 12469-12497, which was an inheritance or succession tax law, and that since Bass reserved no reversionary interest or possibility of reverter in the property the transfer was not "intended to take effect in possession or enjoyment at or after" the death of the trustor, so as to be taxable under the law then in effect; (2) that if it was taxable under the law the in effect, no tax was due after the allowance of proper exemptions; (3) that the law in effect at the time of the death of Bass, article 5, ch. 66, p. 274, S.L. 1935, which was an estate tax law, and which was applied by the Oklahoma Tax Commission, cannot constitutionally be applied retroactively to a transfer made prior to its enactment.

¶5 The Tax Commission argues that the transfer was taxable under the 1935 Act, and that, since the economic benefit passed upon the death of Bass in 1938 and it is the passing of the economic benefit that the 1935 Act was intended to tax, the rule against retroactive application of tax laws is not violated.

¶6 At the outset, it is important to keep in mind the difference between estate taxes and inheritance taxes. Both are death duties, but the authorities recognize a distinction between them. An inheritance tax is one imposed upon "the right to receive" while an estate tax is one imposed upon "the privilege of transfer at death." "Death duties rest upon the principle that death is the generating source from which the authority to impose such taxes take their being." 28 Am. Jur. 12, § 9.

¶7 In 1915, the Legislature enacted an inheritance tax statute (In re Whitson's Estate, 88 Okla. 197, 212 P. 752) levying a tax upon the transfer of property:

"First: By will or the intestate laws of this state; Second: By deed, grant, bargain sale or gifts, made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death; Third: When the transferee becomes beneficially entitled in possession or expectancy by any such transfer whether made before or after the passage of this Act. Said tax shall be upon the clear market value of such property." S.L. 1915, p. 215.

¶8 This act was an amendment to the then existing inheritance tax statute, R.L. 1910, § 7489, which was enacted at the 1907-8 Session of the Legislature. S. L. 1907-8, p. 733. There was a slight change in the verbiage of the two acts, but so far as material here the meaning was the same. The 1915 Act (C.O.S. 1921, § 9891 O.S. 1931 § 12469) remained in effect until 1935, and was the statute in effect in 1930, when the transfer here involved was made.

¶9 At the time of the enactment of the 1915 Act and the prior act, the clause "intended to take effect in possession or enjoyment at or after such death" was in the taxing statutes of New York and perhaps other states, and it had been construed to cover and made taxable transfers where the grantor reserved the income for life. Re Brandreth (1902) 169 N.Y. 437, 62 N.E. 563, 58 L.R.A. 148. See, also, annotation in 49 A.L.R. 864, at 874.

¶10 By the subsequent decisions of the state courts, it has been almost uniformly held that under such an inheritance or succession tax provision the retention of income renders the transfer taxable at the death of the grantor or donor. See Worcester County National Bank v. Commission of Corporation Taxation (1931) 275 Mass. 216, 175 N.E. 726; Blodgett v. Guaranty Trust Co. (1932) 114 Conn. 207, 158 A. 245; In re Estate of Rising (1932) 186 Minn. 56, 242 N.W. 459; Russell v. Cogswell (1940) 151 Kan. 14, 98 P.2d 179; In re Walker's Estate (1941) 100 Utah, 307, 114 P.2d 1030; In re Jones' Estate (1944) 350 Pa. 120, 38 A.2d 30; See annotations in 49 A.L.R. 874; 67 A.L.R. 1250; 100 A.L.R. 1247; 121 A.L.R. 364; 155 A.L.R. 850; 84 L.Ed 41; American Digest, Taxation, Key No. 879 (1).

¶11 On the other hand, the United States Supreme Court, in May v. Heiner (1930) 281 U.S. 238, 74 L.Ed. 826, 50 S.Ct. 286, 67 A.L.R. 1244, held that the retention of income did not subject the transfer to the Federal estate tax under a similar statutory provision.

¶12 The state decisions are based upon the theory that the shifting of the right of possession or enjoyment - the economic benefit - at the time, and by reason, of the death of the grantor is the occurrence or incident on which the tax is levied, and that such incident is a proper subject of an excise tax, and that it is not material that such incident followed from the prior absolute vesting of title in interest. On the other hand, the decision in May v. Heiner, and the other decisions following it, are based upon the theory that the shifting of the right of possession and enjoyment resulted from the prior vesting in interest, and that the transmission of the beneficial use and enjoyment was not the...