Loeb's Estate, In re

• Citation: 400 Pa. 368,162 A.2d 207
• Parties: ESTATE of Hortense F. LOEB, Late of Montgomery County, Pennsylvania, Deceased. APPEAL OF COMMONWEALTH of Pennsylvania.
• Decision Date: 29 June 1960
• Court: Pennsylvania Supreme Court

Page 207

162 A.2d 207

400 Pa. 368

ESTATE of Hortense F. LOEB, Late of Montgomery County,

Pennsylvania, Deceased.

APPEAL OF COMMONWEALTH of Pennsylvania.

Supreme Court of Pennsylvania.

June 29, 1960.

Anne X. Alpern, Atty. Gen., Ralph S. Snyder, Deputy Atty. Gen., Edward J. Ozorowski, Spec. Asst. Atty. Gen., for appellant.

Knox Henderson, Norristown, Paul Maloney, Gordon A. Block, Philadelphia, for appellee.

Before CHARLES ALVIN JONES, C. J., and BELL, BENJAMIN R. JONES, COHEN, BOK, and EAGEN, JJ.

BELL, Justice.

Hortense F. Loeb died July 8, 1957, a resident of Montgomery County, leaving a will and codicil, the dates of which do not appear in this record. She made pecuniary bequests totaling approximately $412,000 to persons standing in a collateral relationship to her. These bequests were taxable at the rate of 15% under § 2 of the Transfer Inheritance Tax Act of June 20, 1919, P.L. 521, as amended, 72 P.S. § 2302. Testatrix in the 8th paragraph of her will provided: 'All estate, inheritance or succession taxes on my estate and on any property passing ¹ under this will shall be charged against and paid as and when due out of the principal of the residuary trust.' ²

The executors computed the inheritance tax in accordance with the clear and express directions of the testatrix, and in accordance with the interpretation of the Act and the practice which admittedly has existed in this Commonwealth for 39 years, viz., 15% on the specific dollar amount of each pecuniary legacy bequeathed to a collateral. However, the Department of Revenue computed and calculated the tax in accordance with a new Tax Calculation Directive which treated each tax-free bequest as creating an 'additional legacy' which it alleged was likewise taxable under the Act.

The new directive devised by the Commonwealth gives several examples:

"Example 1: Testator 'X' by Item 6 of his will bequeaths $100,000.00 free and clear of all death and succession taxes to legatee 'A'. The gross legacy must be determined in order to calculate the proper tax due. Assuming that 'A' is a collateral heir, the $100,000.00 represents 85% of the gross legacy. In order to determine the gross legacy, it will be necessary to take the net percentage and divide the same into the dollar amount of the net legacy to arrive at the gross legacy, to wit: 85%-$100,000.00-$117,647.05.

"Thus, the tax calculation concerning the gift to 'A' should be 15% on [an alleged or imaginary legacy of] $117,647.05 and the tax thereon will be $17,647.05 with a net legacy free and clear to 'A' of $100,000.00." ³

The executors appealed to the Orphans' Court of Montgomery County from the novel (proposition and) calculation of the Revenue Department. From the Decree of the Orphans' Court which sustained the contention of the executors, the Commonwealth has taken this appeal.

It is important and necessary to examine the Pennsylvania Transfer Inheritance Tax Act of June 20, 1919, as amended 72 P.S. 2301 et seq., in order to determine its meaning. The Act pertinently provides:

'Section 1. A tax * * * is hereby imposed upon the transfer of any property real or personal, or of any interest therein ⁴ * * * to persons or corporations in the following cases:'

'Section 2. All taxes imposed by this act * * * shall be at the rate of two percentum upon the clear value of the property, subject to such tax passing to or for the use of father, mother, husband wife children, lineal descendents born in lawful wedlock, * * * [and 15% to more remote relatives].'

The Revenue Department contends that the 'clear value' of a tax-free gift of $100,000 passing to a collateral pecuniary legatee is clearly not $100,000, but is clearly $117,647.05. We are convinced that the language meaning and intent of the Act is clear and that the Department's new interpretation is not in accordance with, but is an unreasonable distortion of the language, the meaning, and the intent of this Act.

Judge Taxis well said:

'Plainly what actually passes to the beneficiary is what he actually receives after the tax has been paid. From this it follows that the dollars used to pay the tax are not part of the clear value of the property passing to the beneficiary. Accordingly the clear value of the property [within the meaning of the Act] is simply the fact amount of the legacy * * *.'

The tax as computed by the Commonwealth under its new directive was $10,926.21 more than the tax would have been if the 39 year old construction of the Act had prevailed. ⁵ Acts imposing a tax must be strictly construed against the Commonwealth and all reasonable doubt must be resolved in favor of the taxpayer: Commonwealth v. Budd Company, 379 Pa. 159, 108 A.2d 563; Allentown School District Mercantile Tax Case, 370 Pa. 161, 87 A.2d 480; Murray v. City of Philadelphia, 364 Pa. 157, 71 A.2d 280; Commonwealth v. Repplier Coal Co., 348 Pa. 372, 35 A.2d 319.

For 39 years, during which time an inheritance tax has been computed and assessed in literally thousands of estates in all parts of this Commonwealth, Judges, lawyers, legatees and the Commonwealth itself have all unanimously agreed that under the provisions of the Act, the tax which is payable out of the residuary estate on a tax-free legacy is computed and assessed--at 2% where the legatee is a direct heir and 5%, later increased to 15%, where the legatee is a collateral heir--on the pecuniary amount of the legacy. ⁶

The Commonwealth correctly contends that this does not raise a binding estoppel against it. Where the language of a statute is plain and clear, administrative interpretations and practice cannot change or avoid the statute. Where, however, the words of a statute are not clear or explicit the contemporaneous construction of a statute by those charged with its execution and application, especially when it has long prevailed, is entitled to great weight and should not be disregarded or overturned except for clear language in the Act itself or very strong cogent and convincing reasons. Federal Deposit Insurance Corporation v. Board of Finance and Revenue, 368 Pa. 463, 468, 84 A.2d 495; 25 R.C.L. 1043, § 274; 42 Am.Jur. 392, § 78; Logan v. Davis, 233 U.S. 613, 627, 34 S.Ct. 685, 58 L.Ed. 1121; Commonwealth v. Mann, 168 Pa. 290, 301, 302, 31 A. 1003, 1006; Commonwealth v. Paine, 207 Pa. 45, 48, 56 A. 317, 318; Estate of Henry Scheutz, Jr., Deceased, 114 Pa.Super. 602, 607, 174 A. 832, 833, 834; Cammie v. I. T. E. Circuit Breaker Co., 151 Pa.Super. 246, 250, 30 A.2d 225, 227; also Statutory Construction Act of May 28, 1937, Art. IV, §§ 51 & 52, P.L. 1019, 46 P.S. §§ 551, 552.

Assuming arguendo that the language of the Act is not clear, the novel construction of the Act which is now advocated by the Revenue Department flies in the teeth of the language and the intention of the testatrix, flies in the teeth of the clear, simple, definite, and universal construction of the Act for 39 years by Judges and lawyers, as well as by the Commonwealth itself in (we repeat) thousands of cases, and is likewise in conflict with decisions of this Court which, by necessary implication, have held to the contrary, and is further rebutted by a pertinent legal presumption hereinafter cited.

If the language of the Inheritance Tax Act is as clear as the Commonwealth now contends it is, if it clearly imposes an additional tax on this 'additional' tax-free legacy and on similar tax-free legacies, we may appropriately ask how it is that no one saw this clear beacon-light testamentary and legislative intent until now? The Commonwealth will seek in vain any language in the will that the testatrix intended to give to her legatees not the pecuniary legacy she clearly stated, but that amount plus an additional legacy in an amount unknown to her, but which is equal to the inheritance tax on the legacy which tax she clearly and specifically said should be charged against and paid out of the principal of the residuary trust. If the language of the Act so clearly creates an additional lagacy and so clearly imposes this additional tax, how is it, we repeat, that hundreds of able Judges and lawyers, and many able attorneys-general and legislators have been for 39 years so blind as not to have discovered this clarity?

In Frick's Estate, 1923, 277 Pa. 242, 257, 258, 121 A. 35, 41, the Court said:

'* * * It necessarily follows that the direction of the present will 'that all inheritance * * * taxes * * * shall be paid out of the capital of my residuary estate' can have no effect in reducing [or increasing] the amount of tax to be paid to this state, but only operates, as between the two classes of gifts, to fix the ultimate payment upon the residuary devisees and legatees, in relief of the others, each of whom, but for that clause, would suffer an abatement of his or her devise or bequest, to the extent of the tax imposed upon its value.

* * *

* * *

'As to the inheritance tax paid to this state, we may further say that the act discloses no trace of a purpose to permit the deduction of the tax itself, in order to determine the valuation upon which the tax is to be levied. On the contrary, section 16 expressly provides that before paying any legacy the 'executor or administrator, or other trustee, * * * shall deduct [the tax] therefrom at the rate of two per centum upon the whole legacy [if the inheritance is direct] * * * and at the rate of five per centum upon the whole legacy,' if the inheritance is collateral. Hence it is palpably erroneous to say that the percentage to be levied on the 'clear value of such estate,' as calculated in the manner provided by the statute, should not be levied thereon, but on a sum which is that 'clear value' less [or plus] the tax itself; that is, in the case of direct inheritance on 98 per cent of that value, and in the case of collaterals on 95 per cent of it. Doubtless the Legislature could thus provide, but it has not, and, so far as we are aware, no other Legislature...