Lockwood v. Walsh, 7386.

• Decision Date: 18 January 1946
• Docket Number: No. 7386.,7386.
• Citation: 45 A.2d 305
• Parties: LOCKWOOD v. WALSH, Director of Division of Taxation. In re CARSCALLEN'S ESTATE.
• Court: New Jersey Prerogative Court

45 A.2d 305

LOCKWOOD

v.WALSH, Director of Division of Taxation.

In re CARSCALLEN'S ESTATE.

No. 7386.

Prerogative Court of New Jersey.

Jan. 18, 1946.

Proceeding between Arabella H. Lockwood, surviving executrix of the will of Charles S. Carscallen, and Frank E. Walsh, Director of Division of Taxation, Department of Taxation and Finance, in the matter of the transfer inheritance tax in the estate of Charles S. Carscallen. From a supplementary assessment of additional taxes, the surviving executrix appeals.

Decree in accordance with opinion.

1. In the absence of statutory authority, the Director of the Division of Taxation has no power to reopen and, solely in consequence of an erroneous exercise of judgment, to revise upward an assessment of transfer inheritance taxes previously levied upon the same assets and paid by the taxpayer in conformity with the original assessment.

2. In the field of social and public economics, there is a conspicuous virtue in the policy that gives finality to authoritative adjustments of tax as well as other financial liabilities. So, also, with the judgments and decrees of our courts.

3. Any power of the tax administrator to make supplemental increased assessments should be circumscribed with reasonable limitations and therefore is a matter appropriately within the domain of the legislature.

Thomas H. Ross, of Jersey City (Alfred C. Clapp, of Newark, of counsel), for appellant.

Walter D. Van Riper, Atty. Gen., and William A. Moore, Sp. Counsel, of Trenton, for respondent.

JAYNE, Vice Ordinary.

The paramount issue implanted in the present appeal has not heretofore engaged the consideration of any of the courts in this state. The discord between the parties relates fundamentally to the power and authority, if any, of the respondent, Director of Division of Taxation, to reopen and, in consequence of a change of opinion, to revise upward an assessment of transfer inheritance taxes previously levied upon the same assets and paid by the appellant in conformity with the preceding assessment.

It is necessary to trace the occurrences that instituted the original assessment and the circumstance that has evoked its revision. One Charles S. Carscallen, a resident of Hudson County, New Jersey, died testate on June 29, 1939, and on September 20, 1940, a transfer inheritance tax report of the assets of his estate was executed by the executrices of his will. The respondent, properly employing the report as a basis for his calculations, determined that the assets of the decedent's estate had a net value of $465,346.86, upon which taxes were computed in the amount of $23,267.34. The representatives of the estate had on June 29, 1940, deposited with the respondent the sum of $22,440 to be applied to the tax liability, and on April 21, 1942, the balance in the amount of $827.34 was paid with accrued interest. The usual receipt ‘in settlement of account’ and a waiver and release in conventional forms were issued to the representatives of the estate.

In July 1942 the representatives of the estate informed the respondent that they had erroneously included as assets in the report a greater number of shares of a certain stock than the decedent actually owned at his death. Upon the submission of proof, the assessment was opened and the estimated valuation of the net estate diminished to $462,727.32, the transfer of which incurred a tax liability of $23,136.36. The representatives of the estate thus obtained a tax refund of $155.24.

The interest of the decedent in the estate of his father, John D. Carscallen, who died testate on April 8, 1906, was always recognized as an asset of Charles' estate. The legal nature and character of that interest was problematical. Whether it was a vested or contingent interest constituted the debatable point. Indeed, the representatives of the decedent's estate resolved to consult special counsel concerning the subject and on June 10, 1940, elicited from him and exhibited to the tax bureau an opinion which occupies eighteen lengthy pages of the transcript of the proceedings here submitted. The learned counsellor rationalized that the residual gift to Charles by his father was wholly contingent upon the event of Charles surviving the death of Mary Kate Carscallen. Charles in fact predeceased Mary. The interest of the decedent was accordingly assessed as an intestate share in that portion of the residuary estate of John D. Carscallen, deceased, which was to have passed to Charles, but which was deemed to have lapsed upon the demise of Charles prior to the death of Mary.

What has happened? Recently the executrix and her co-trustee of the estate of John D. Carscallen instituted a cause in Chancery praying for a construction of his will. Lockwood v. Clarke, 136 N.J.Eq. 195, 41 A.2d 37. On February 1, 1945, Vice Chancellor Fielder rendered an opinion in which he determined (136 N.J.Eq. on page 200, 41 A.2d on page 40): ‘Thus the testator made the event of the death of a child leaving issue, the only factor which would curtail the absolute vesting in such child, but since he made no provision for the death of a child without leaving issue, the event did not occur in the case of Charles which would divest his vested interest, and Charles' share of corpus which had vested in him at testator's death will pass under his will and will be distributable when the time for distribution arrives.’ That adjudication declarative of the vested nature of the interest of this decedent in the estate of his father is not here denied or sought to be discredited.

The inheritance tax authorities exemplifying their customary diligence and efficiency examined the opinion and on March 7, 1945, notified the proctor for the estate of this decedent that a correction of the assessment of transfer taxes would be necessary in consequence of the judicial determination of the vested interest of the decedent in the residuary estate of his father. The reorganized assessment develops additional taxes in the sum of $13,045.06.

There is another circumstance that carries too much practical significance to be entirely ignored. It is the admitted fact that the decedent's estate had been substantially administered two years before notice was received of the proposed revised assessment.

Before closing this narrative of the facts, it is relevant to state that there is no intimation whatever that the taxpayer or the taxing authorities indulged in any deception or bad faith in formulating the original assessment of 1942.

The legislature has expressly conferred upon the Ordinary the jurisdiction ‘to hear and determine all questions in relation to a tax levied’ under the statute. R.S. 54:33-2; N.J.S.A. 54:33-2. In determining the legal propriety of the new and supplementary assessment here sought to be made and the consequent imposition of additional taxes, the question is whether the former tax assessment is to be regarded as a finality in the factual circumstances here adduced.

In all these matters it is basic to remember that transfer inheritance taxation derives its substance from statutory enactments. The administration of our statute taxing the transfer of the assets of a decedent's estate is expounded in Chapter 228, Laws of 1909, N.J.S.A. 54:34-1 et seq. by the provisions of which the performance of the administrative duties continued to devolve upon the Comptroller until 1931, when, by Chapters 197, 201, 202, 303, and 336, Laws of 1931, N.J.S.A. 54:33-5, 54:33-6, 54:33-9, 54:33-11, 54:33-12; 54:34-1 et seq., and 54:1-1 et seq., those functions were transferred to the State Tax Commissioner. In 1944, by Chapter 112, § 1 (Art. 4) p. 304, N.J.S.A. 52:27B-48, the powers and duties theretofore assigned to the State Tax Department and to the State Tax Commissioner were bestowed upon the Director, Division of Taxation, in the State Department of Taxation and Finance. See also, State Tax Uniform Procedure Act, R.S. 54:48-1 et seq., N.J.S.A. 54:48-1 et seq.

Assuredly the respondent is a governmental agent, a creature of legislation by which his authority is invested and his obligations defined. So, also, may it be said that this court in the exercise of its appellate privileges is a designated statutory tribunal clothed in that capacity with no powers beyond those granted by statute. And yet, my attention has not been directed to any statutory enactment that expressly authorizes the respondent to make in such circumstances the reassessment here impugned.

It is argumentatively asserted that there is no statutory provision prohibiting such a reassessment. I cannot accept the incongruous notion that statutory agencies possess all instrumental powers except those expressly denied them by statute. Such a supposition defies our settled law.

True, there is in the statutory structure a section which enables the State Tax Commissioner (Director) upon his own motion to ‘appoint a competent person as appraiser as often as and whenever occasion may require.’ R.S. 54:34-6, N.J.S.A. 54:34-6. That segment of the statute was undoubtedly designed to permit the taxing authority to reach and assess property of the decedent which was initially unknown, or inadvertently omitted or fraudulently concealed at the time of the appraisement, or property at that time of an unascertainable value and hence reserved for future appraisal. It does not encompass an endeavor to reappraise and reconsider at any future time a complete assessment comprehensively concluded and settled. Commonwealth v. Freedley's Ex'rs, 21 Pa. 33; In re Rice's Estate, 29 Misc. 404, 61 N.Y.S. 911, affirmed 56 App.Div. 253, 68 N.Y.S. 1147; In re Crerar's Estate, 56 App.Div. 479, 69 N.Y.S. 795. I remarked in Grell v. Kelly, 134 N.J.Eq. 593, on page 597, 36 A.2d 874, on page 877, ‘Uniformity today in the construction and application of homogenetic statutes by the courts of neighboring states in like cases is undoubtedly opportune.’

It is theorized on behalf of the...