Simpson's Estate, In re

• Decision Date: 29 October 1954
• Citation: 275 P.2d 467,43 Cal.2d 594
• Parties: , 47 A.L.R.2d 991, 46 A.F.T.R. 918 In the Matter of the ESTATE OF William E. SIMPSON, Deceased. Robert C. KIRKWOOD, Controller of the State of California, Petitioner and Appellant, v. Ethel M. SIMPSON, as Executrix of the Last Will and Testament of William E. Simpson, Contestant and Respondent. L. A. 22914.
• Court: California Supreme Court

Page 467

275 P.2d 467

43 Cal.2d 594, 47 A.L.R.2d 991, 46 A.F.T.R. 918

In the Matter of the ESTATE OF William E. SIMPSON, Deceased.

Robert C. KIRKWOOD, Controller of the State of California, Petitioner and Appellant, v. Ethel M. SIMPSON, as Executrix of the Last Will and Testament of William E. Simpson, Contestant and Respondent.

L. A. 22914.

Supreme Court of California, In Bank.

Oct. 29, 1954.

Rehearing Denied Nov. 24, 1954.

James W. Hickey, Chief Inheritance Tax Atty., Sacramento, Walter H. Miller, Senior Inheritance Tax Atty., Los Angeles, and William R. Elam, Associate Inheritance Tax Atty., Merced, for appellant.

J. E. Simpson, Los Angeles, for respondent.

SPENCE, Justice.

The Controller of the State of California appeals from an order of the probate court sustaining respondent's objections to the corrected inheritance tax report, which subjected certain death benefits paid to respondent under the Los Angeles County Employees' Retirement System to inheritance tax. The court held that such payments were exempt from the tax. Government Code, § 31452. Appellant challenges the propriety of that decision and in our opinion, his objection must be sustained.

William E. Simpson and Ethel M. Simpson were married December 31, 1912, and were husband and wife at the time of Mr. Simpson's death on April 28, 1951. For many years preceding his death, Mr. Simpson was an employee of the county of Los Angeles and a member of the Los Angeles County Employees' Association. Pursuant to the County Employees' Retirement Law of 1937 (now Gov.Code, Part 3, §§ 31451-31794), he had made contributions to the association's retirement fund between August 1, 1940, and March 31, 1951. On July 9, 1940, he had designated his wife as the beneficiary to receive the death benefits under the act. Gov.Code, § 31780. Upon his death she received the sum of $15,856.26, Gov.Code, §§ 31780-31781, of which amount $7,676.42 was a return of decedent's contributions, $679.84 was interest thereon, and $7,500 was a contribution made by the county. Gov.Code, § 31781(b). The inheritance tax appraiser included in his report the $15,856.26 as a taxable gift in contemplation of death, Revenue and Taxation Code, §§ 13641-13648, finding such sum to be community property, with one-half or.$7,928.13 entitled to the community exclusion and the other half subject to inheritance tax. Decedent's wife filed written objections to the report, claiming that the death benefits paid to her under the retirement law were exempt from inheritance taxation. Gov.Code, § 31452. The court sustained the objections and ordered the $15,856.26 excluded from the taxable estate in computing the amount of inheritance tax.

Section 31452 of the Government Code provides: 'The right of a person to a pension, annuity, retirement allowance, return of contributions, the pension, annuity, or retirement allowance, any optional benefit, any other right accrued or accruing to any person under this chapter, the money in the fund created or continued under this chapter, and any property purchased for investment purposes pursuant to this chapter, are exempt from taxation, whether state, county, municipal, or district, and from any law relating to bankruptcy or insolvency. They are not subject to execution, garnishment, attachment, or any other process of court whatsoever, and are unassignable except as specifically provided in this chapter.' The determinative question is whether the statutory words 'are exempt from taxation' include an exemption from the inheritance tax, which is a privilege tax as distinguished from a general property tax.

The inheritance tax is not a tax on the property itself, but is an excise imposed on the privilege of succeeding to property upon the death of the owner. In re Estate of Bloom, 213 Cal. 575, 581, 2 P.2d 753; In re Estate of Barter, 30 Cal.2d 549, 556, 184 P.2d 305; Cal.Admin.Code, Title 18, p. 89. It arises under a general law, Inher. Tax Law, Stats.1943, ch. 658, § 1, p. 2297, Rev. & Tax. Code, §§ 13301-14901, dealing with a particular area of taxation. An exemption from the burden of such general statute must be clearly shown and will not be inferred from the doubtful import of statutory language. 24 Cal.Jur. § 73, p. 89; 51 Am.Jur. § 524, p. 526; In re Estate of Steehler, 195 Cal. 386, 396, 233 P. 972. Government Code, section 31452, contains only the general words 'exempt from taxation,' for application without particularization. Relying upon the rule that any exception from the operation of a general statute must be specific in order to be effectual, Los Angeles Railway Corp. v. Los Angeles County Flood Control Dist., 78 Cal.App. 173, 182, 248 P. 532; In re Goddard, 24 Cal.App.2d 132, 139, 74 P.2d 818, and that the asserted exemption will be strictly construed against the one claiming its benefit, 24 Cal.Jur. § 73, pp. 89-90; Lockhart v. Wolden, 17 Cal.2d 628, 631, 111 P.2d 319; Helping Hand Home for Children v. San Diego County, 26 Cal.App.2d 452, 458-459, 79 P.2d 778, appellant maintains that said section 31452 does not provide an exemption from the inheritance tax.

Our constitutional requirement of uniformity and equality of taxation has always been construed to apply to direct property taxes (noe Art. XIII, § 1) and to have no bearing upon an excise or privilege tax such as a levy under the Use Tax Act, Stats.1935, ch. 361, p. 1297; Douglas Aircraft Co., Inc. v. Johnson, 1939, 13 Cal.2d 545, 90 P.2d 572, or license fees assessed for the right to carry on certain businesses. People ex rel. Attorney General v. Naglee, 1850, 1 Cal. 232; People v. Coleman, 1854, 4 Cal. 46; Emery v. San Francisco Gas Co., 1865, 28 Cal. 345; City of Los Angeles v. Los Angeles Independent Gas Co., 1908, 152 Cal. 765, 93 P. 1006. Local assessments do not come within the meaning of the word 'tax' as used in the constitutional provision exempting lands of the state from taxation. City of San Diego v. Linda Vista Irr. Dist., 1895, 108 Cal. 189, 41 P. 291. The constitutional exemptions from taxation refer only to property taxes. (E. g. Art. XIII, § 1a (colleges); § 1b (burial plots); § 1c (property used for religious, hospital and charitable purposes); § 1 1/2 (church property); § 1 1/2a (orphanages).) The constitutional exemption of $1,000 allowed to veterans extends only to property taxes and not to an excise or privilege tax under the Motor Vehicle License Fee Act. Stats.1935, ch. 362, p. 1312; Ingels v. Riley, 1936, 5 Cal.2d 154, 53 P.2d 939, 103 A.L.R. 1. The exemption of state, municipal and district bonds from taxation applies only to property taxes and does not preclude inclusion of the interest from such bonds in the net income base by which the state franchise tax is measured. Art. XIII, § 1 3/4; Pacific Co., Ltd. v. Johnson, 1931, 212 Cal. 148, 298 P. 489.

The history of retirement legislation in this state must also be considered in relation to section 31452 of the Government Code. The 1919 County Employees' Retirement Act, Stats.1919, ch. 373, p. 782, is the first act to be noted, declaring the member's wage deductions, his 'right * * * to an annuity' and 'all his rights in the fund of the retirement system' to be 'exempt from taxation'. Then followed the Peace Officers' Retirement Act of 1931, Stats.1931, ch. 268, p. 477, stating 'the right of a peace officer or other person to an annuity or pension and all of their rights in the fund herein provided' to be 'exempt from taxation'. That same year, 1931, the State Employees' Retirement Act, Stats.1931, ch. 700, p. 1442, was adopted in almost identical language as contained in said section 31452, except that no provision for exemption from taxation was made but only exemption from 'execution, garnishment, attachment * * *.' In the light of this legislative background, the County Employees' Retirement Law of 1937 was enacted, Stats.1937, ch. 677, § 2, p. 1898; now Gov.Code, §§ 31450-31477, with section 32 thereof now embodied in said section 31452. It is fairly arguable that the wording of this latter act in its exemption provision was patterned after the prior retirement acts. Likewise reasonable is the assumption that the Legislature intended the tax exemption therein contained to apply only to property taxes as previously construed. Between 1937 and 1947, the year when the 1937 retirement act was adopted into the Government Code, Stats.1947, ch. 424, § 1, p. 1263, our courts again construed our Constitution, Article XIII, section 1 (uniformity and equality of taxes) and section 1a (the college exemption) to refer only to property tax exemptions, and not to excise or privilege tax exemptions. Brunton v. Superior Court of Los Angeles County, 1942, 20 Cal.2d 202, 124 P.2d 831; California Institute of Technology v. Johnson, 1942, 55 Cal.App.2d 856, 132 P.2d 61.

Prior to the enactment of our 1937 retirement law, a comprehensive exemption statute of New York, Greater New York Charter, § 1092, subd. W. Laws 1901, c. 466, as amended by Laws 1917, c. 303, had been interpreted and construed by the courts of that state as exempting the cited rights and benefits from state inheritance taxation. In re Morrison's Estate, 1927, 130 Misc. 438, 224 N.Y.S. 346; In re Fischer's Estate, 1928, 132 Misc. 204, 229 N.Y.S. 826, affirmed, 223 App.Div. 887, 229 N.Y.S. 855. The similarity between the New York law, Greater New York Charter, § 1092, subd. W, and our 1937 act lies in their substantially identical recital of matters subject to exemption: (1) the right of a person to a pension, annuity, retirement allowance, return of contributions; (2) the pension, annuity or retirement allowance; (3) any optional benefit, any other right accrued or accruing to any person under the act; (4) the money in the fund created under the act. However, the respective exemption provisions differ materially. The New York exemption clause reads 'exempt from any state or municipal tax, and exempt from levy and sale, garnishment, attachment,...