Page v. Commissioner of Revenue

• Decision Date: 08 June 1983
• Parties: , 36 UCC Rep.Serv. 941 Charles G. PAGE, executor, v. COMMISSIONER OF REVENUE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 590

450 N.E.2d 590

389 Mass. 388, 36 UCC Rep.Serv. 941

Charles G. PAGE, executor, v. COMMISSIONER OF REVENUE.

Supreme Judicial Court of Massachusetts,

Plymouth.

Argued April 4, 1983.

Decided June 8, 1983.

Charles G. Page, Baltimore, Md. (H. Burton Powers, Boston, with him), pro se.

Linda M. Irvin, Asst. Atty. Gen., for defendant.

Before HENNESSEY, C.J., and WILKINS, ABRAMS, NOLAN and O'CONNOR, JJ.

NOLAN, Justice.

This case is before us on a reservation and report, by a judge of the Probate and Family Court, of certain questions of law arising from a petition for an abatement of estate tax assessed by the Commissioner of Revenue (Commissioner). The parties have submitted a stipulation of facts. The judge reserved and reported three questions to the Appeals Court, pursuant to G.L. c. 215, § 13. We allowed the parties' joint application for direct appellate review.

Briefly, the facts are as follows. In 1973, the decedent, Anne B. Middendorf, then domiciled in Maryland, contracted with The Equitable Trust Company, Baltimore (trust company), to deposit certain investment securities to be held and administered pursuant to the decedent's instructions. In June, 1976, the decedent transferred $121,723.32 of these securities to a daughter. ¹ A Federal gift tax was paid with respect to this transfer. In December, 1978, the decedent established a residence in Wareham, Massachusetts, where she remained domiciled until her death in May, 1979. At the time of her death, the securities still held in Maryland were valued at $2,402,308.53. The decedent's assets included, in addition to the securities, two parcels of real estate in Maryland, another parcel of real estate in Massachusetts, various checking and savings accounts, and other miscellaneous personal property located both in Massachusetts and in Maryland.

The Maryland executors (The Equitable Trust Company and Charles G. Page) filed a Maryland estate tax return, listing the securities held by the trust company in Maryland, and they paid a Maryland estate tax of $136,981.63, plus interest. See Md.Ann.Code art. 62A, §§ 1, 2, 3 (1979 & 1982 Supp.). ² Additionally, the Maryland executors paid a Maryland inheritance tax of $7,899.28. See Md.Ann.Code art. 81, §§ 149-151 (1980). Page, who was appointed also as the executor in Massachusetts, filed a Massachusetts estate tax return listing as non-Massachusetts property the securities held by the trust company in Maryland. The executor calculated the Massachusetts estate tax to be $13,267.64, and, because he had already paid $17,179, claimed a refund of $3,911.36. The record is not clear as to the calculations which lead to the payment of $17,179. However, the Commissioner included as part of the Massachusetts gross estate the securities held by the trust company, and $22,279.93 in cash on deposit at various Maryland banks. The inclusion of the bank accounts has not been challenged. Moreover, the Commissioner included in the estate the 1976 gift of securities as a gift made in contemplation of death. ³ Accordingly, the Commissioner assessed the estate tax to be $392,877.68, including interest. The executor applied for an abatement of the tax, claiming that the Commissioner erroneously included, as part of the Massachusetts gross estate, the securities held by the trust company in Maryland. The Commissioner denied the application, whereupon this action was commenced.

The probate judge reserved and reported the following questions of law: (1) Did the Commissioner's assessment erroneously include the securities held by the trust company in Maryland? ⁴ (2) Does Massachusetts have the power to tax a gift made in contemplation of death where the gift was made thirty months prior to the donor's establishment of a Massachusetts domicile? (3) If the preceding two questions are resolved in favor of the executor, is the estate entitled to a refund of $3,911.36?

1. Securities held by the trust company in Maryland. General Laws c. 65C, § 1(f ), defines the Massachusetts gross estate as "the federal gross estate, whether or not a federal estate tax return is required to be filed, less the value of real and tangible personal property having an actual situs outside the commonwealth." The executor argues that the securities held by the trust company in Maryland are "tangible personal property" within the meaning of G.L. c. 65C, § 1(f ), and are, therefore, not part of the massachusetts estate. Historically, securities have been regarded as intangible personal property. See, e.g., Welch v. Treasurer & Receiver Gen., 223 Mass. 87, 92-93, 111 N.E. 774 (1916). See also Frost v. Commissioner of Corps. & Taxation, 363 Mass. 235, 245, 293 N.E.2d 862, appeals dismissed, 414 U.S. 803, 94 S.Ct. 51, 38 L.Ed.2d 40 (1973). However, the executor argues that because art. 8 of the Uniform Commercial Code (UCC) provides that an investment security is a negotiable instrument, G.L. c. 106, §§ 8-102(1)(a ), 8-105(1), as appearing in St.1957, c. 765, § 1, the security, in effect, embodies the underlying intangible interest and therefore becomes a chattel, acquiring an actual physical situs where no such situs had previously existed. Accordingly, the executor concludes that the securities are tangible personal property having a situs in Maryland where they are physically located, and are, therefore, not part of the Massachusetts gross estate. We disagree.

Reduced to its essentials, the executor's argument in effect is that art. 8 of the UCC abrogates the common law doctrine that securities are intangibles for taxation purposes. The executor cites no authority for this position, nor has our research uncovered any. The short answer to the executor's argument is that there is nothing in art. 8 to indicate that the Massachusetts Legislature, in adopting the UCC, intended to amend the estate tax law, or to change the common law view of securities as intangibles for estate tax purposes. See Riley v. Davison Constr. Co., 381 Mass. 432, 438, 409 N.E.2d 1279 (1980) ("statute is not to be interpreted as effecting a material change in ... the common law unless [such intent] is clearly expressed"), quoting Pineo v. White, 320 Mass. 487, 491, 70 N.E.2d 294 (1946). We decline to interject such an intent into the plain language of the Uniform Commercial Code. Moreover, we decline to interpret the estate tax statute as being reflective of a change in the common law view of securities. When the Legislature enacted G.L. c. 65C, it was presumably aware of the opinions written by this court which held that securities are intangibles for taxation purposes. See MacQuarrie v. Balch, 362 Mass. 151, 152, 285 N.E.2d 103 (1972) (Legislature is presumed to be aware of decisions of this court). There is no expression of an intent to change the law in this respect. "In arriving at this conclusion, we adhere to the principle that '[a] taxing statute should receive a practical construction.' " Lowell Gas Co. v. Commissioner of Corps. & Taxation, 377 Mass. 255, 259, 385 N.E.2d 9 (1979), quoting Niagara Mohawk Power Corp. v. Wanamaker, 286 A.D. 446, 449, 144 N.Y.S.2d 458 (N.Y.1955), aff'd, 2 N.Y.2d 764, 157 N.Y.S.2d 972, 139 N.E.2d 150 (1956). See State Tax Comm'n v. John Hancock Mut. Life Ins. Co., 361 Mass. 125, 130-131, 279 N.E.2d 656 (1972) (where no ambiguity in tax statute appears, rule of resolving all doubts in favor of taxpayer does not arise). Accordingly, we hold that securities held by a foreign trust company on behalf of a Massachusetts domiciliary are not "tangible personal property having an actual situs outside the commonwealth." G.L. c. 65C, § 1(f ). the commissioner was correct.

The executor also argues that the imposition of an estate tax by the Commissioner on the securities located in Maryland violates the Fourteenth Amendment to the United States Constitution and art. 10 of the Declaration of Rights of the Constitution of the Commonwealth. As authority for this position, the executor cites Frick v. Pennsylvania, 268 U.S. 473, 45 S.Ct. 603, 69 L.Ed. 1058 (1925). Therein lies the flaw in his argument. The Court in Frick v. Pennsylvania, held that a State statute purporting to tax the transfer of tangible personal property having an actual situs outside the taxing State violates the due process clause of the Fourteenth Amendment. Id. at 488-494, 45 S.Ct. at 604-606. Because we have held that securities are not tangible personal property, the executor's constitutional argument, being premised on a faulty classification of securities, must fail. The executor does not argue that the taxing statute would be unconstitutional as applied to intangibles. See Curry v. McCanless, 307 U.S. 357, 370-374, 59 S.Ct. 900, 907-909, 83 L.Ed. 1339 (1939) (State of decedent's domicile may constitutionally impose estate tax on securities held by trustee in another State.) We decline to interpret art. 10 more broadly than its Federal counterpart in this context.

Finally, the executor argues that because a tax statute should be construed to avoid double taxation, and because Maryland imposed an estate tax on the securities held in the Maryland trust company, Massachusetts should not be permitted to tax the same property. Even if it is true that there is double taxation, a matter on which we express no opinion, we reject this argument. Although double taxation is not favored, it is not per se unconstitutional. Curry, supra. Hawley v. Malden, 232 U.S. 1, 13, 34 S.Ct. 201, 203, 58 L.Ed. 477 (1914). In Curry, the Supreme Court held that two States may constitutionally impose a tax on the transfer of intangibles. Supra 307 U.S. at 372-373, 59 S.Ct. at 908. We again decline to read art. 10 more expansively than its Federal counterpart in this context.

2. Gift made in contemplation of death. As part of the Massachusetts estate, the Commissioner included, as a gift made in contemplation of death, a transfer of securities made by the decedent in 1976. ⁵ The securities were held by...