Simmons v. South Carolina Tax Com'n

• Decision Date: 01 March 1926
• Docket Number: 11924.
• Citation: 132 S.E. 37,134 S.C. 261
• Parties: SIMMONS et al. v. SOUTH CAROLINA TAX COMMISSION.
• Court: South Carolina Supreme Court

132 S.E. 37

134 S.C. 261

SIMMONS et al. v. SOUTH CAROLINA TAX COMMISSION.

No. 11924.

Supreme Court of South Carolina

March 1, 1926

Appeal from South Carolina Tax Commission.

Proceeding to assess inheritance tax by the South Carolina Tax Commission against the legatees and devisees of Benjamin I Simmons, deceased. From the assessment, Mereb E. Simmons and another, as executrices, and Glover L. Simmons and another as executors, of the estate of Benjamin I. Simmons, deceased appeal. Appeal sustained, and matter referred back to tax commission with directions.

Hagood Rivers & Young, of Charleston, for appellants.

J. Fraser Lyon, of Columbia, for respondent.

COTHRAN J.

This is an appeal from an inheritance tax assessment by the South Carolina tax commission against the legatees and devisees of the late Benjamin I. Simmons, who died in September, 1922, testate.

The questions involved are: (1) Should a deduction of the amount paid to the government of the United States as a federal estate tax be allowed? (2) Should a deduction of the amount paid by the executors for the salary of a bookkeeper be allowed? (3) Should the tax levied be 2 per cent. under section 2, or 1 per cent. under section 1?

The tax commission resolved all three of these questions against the interest of the legatees and devisees, and the appeal questions that action.

As to the first question, whether the estate is entitled to a deduction of the amount of the federal estate tax: This question is to be resolved by the answer to the further question whether the South Carolina inheritance tax is to be laid upon the transmission of the estate (by will or under the statute of distributions), or upon the right of the beneficiaries to receive under the will or the intestate laws. If the former, the federal tax is not to be deducted; if the latter, it is.

The point is thus illustrated: In People v. Bemis, 189 P. 32, 68 Colo. 48, it was held that the state inheritance tax was a tax "on the privilege of receiving the legacy or inheritance, and not on the right to transmit by will or by intestate laws"; and that accordingly the federal tax must first be deducted, for the reason as stated by Gleason and Otis, "Inheritance Taxation":

"The reasoning is that the Federal Tax is upon the whole estate as an excise tax on the right to transfer from the dead hand to the living; while the state statutes are imposed upon the right to receive by the living from the dead. The beneficiary cannot receive what he does not get, save by legal fiction."

The court says:

"This court is committed to the doctrine that the right to transmit *** is one thing, and the right to receive a legacy or inheritance is another."

Naturally, holding that it was the latter, the result was inevitable that the federal tax must be deducted.

In the case of Frick v. Pennsylvania, 45 S.Ct. 603, 268 U.S. 473, 69 L.Ed. 1058, the question was whether in levying the state inheritance tax the estate was entitled to credit for the amount of the federal tax which had been paid. The court said:

"While the federal tax is called an estate tax, and the state tax is called a transfer tax, both are imposed as excises on the transfer of property from a decedent, and both take effect at the instant of transfer. Thus both are laid on the same subject, and neither has priority in time over the other. *** The power of taxation granted to the United States does not curtail or interfere with the taxing power of the several states. This power in the two governments is generally so far concurrent as to render it admissible for both, each under its own laws and for its own purposes, to tax the same subject at the same time."

It is worthy of notice that in the Pennsylvania statute it was expressly provided that there should be no deduction on account of the federal tax.

From this it is perfectly clear that, if the South Carolina state tax may be construed as a tax upon the transfer of the estate, the federal tax is not deductible, but that, if a tax upon what the devisee or legatee or distributee is to receive, it must be deducted.

In New York (which will be seen from the case of U.S. v. Perkins, 16 S.Ct. 1073, 163 U.S. 625, 41 L.Ed. 287), the statute specifically provided for the tax upon the right of transfer, and it is universally held in courts of that state that the federal tax is not deductible.

In the case of Miller's Estate, 195 P. 413, 184 Cal. 674, 683, 16 A. L. R. 694, the court said:

" The solution is found in the different natures of the two taxes, the California tax and the federal tax. The California tax is a succession tax, a tax on the beneficial interest of each beneficiary or heir. If there be more than one beneficiary or heir, there is a separate tax on the interest of each, computed on its net clear value, and chargeable against it. *** The federal tax, under the act of 1916, on the other hand, is not a succession tax, but an estate tax, not a tax on what comes to the beneficiaries or heirs, but upon what is left by the decedent. *** The state tax, then, being a succession tax, a tax upon what the transferee receives, and the federal tax being an estate tax, a tax upon what the decedent leaves, there would seem to be no escape from the conclusion that the federal tax must be deducted in order to determine the amount upon which

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