State ex rel. Davis v. State Board of Equalization of Montana

• Citation: 64 P.2d 1057,104 Mont. 52
• Decision Date: 06 February 1937
• Docket Number: 7622.
• Parties: STATE ex rel. DAVIS v. STATE BOARD OF EQUALIZATION OF MONTANA et al.
• Court: Montana Supreme Court

64 P.2d 1057

104 Mont. 52

STATE ex rel. DAVIS v. STATE BOARD OF EQUALIZATION OF MONTANA et al.

No. 7622.

Supreme Court of Montana

February 6, 1937

Appeal from Second District Court, Silver Bow County; T. E. Downey Judge.

Certiorari proceeding by the State, on the relation of Andrew J. Davis as executor of the last will and testament of Elizabeth D Baxter, against the State Board of Equalization of the State of Montana and James H. Stewart and others, as and constituting said board, to review a determination of defendant board in the computation of the income tax of the estate. From a judgment for plaintiff, defendants appeal.

Modified and, as modified, affirmed.

Enor K. Matson, Atty. Gen., and Jeremiah J. Lynch, First Asst. Atty. Gen., for appellants.

James A. Poore, of Butte, for respondent.

ANDERSON Justice.

This is a proceeding in certiorari instituted in the district court, by which it was sought to have the determination of the defendant board in the computation of the plaintiff's income tax reviewed. The plaintiff recovered judgment in the court below and the appeal is from that judgment. The facts are not in dispute.

On March 11, 1936, Andrew J. Davis, as executor of the last will of Elizabeth D. Baxter, deceased, filed his income tax return for the year 1935 with the defendant board. It showed a gross income of $75,825.58, with deductions of $195,096.61.

The board revised the return showing gross income of $76,849.67, with deductions amounting to $12,653.87, an exemption of $1,000, and a net income of $63,185.80 as being subject to tax. The tax computed on this net income was fixed at $2,407.42. The board in arriving at this net income eliminated as a deduction the inheritance tax paid during the tax year, including interest, amounting to the sum of $182,432.74. If the taxpayer was entitled to deduct the inheritance tax paid during the year 1935 from the gross income, there remained no net income subject to tax. The sole question presented on this appeal is whether the taxpayer was correct in making this deduction, or the board correct in disallowing it.

Section 2295.8, Revised Codes of 1935, provides: "In computing net income, there shall be allowed as deductions: *** Taxes, other than taxes imposed by this act, paid or accrued within the taxable year and imposed, first, by the authority of the United States, or of any of its possessions, or second, by the authority of any state, or territory, or any county, school district, municipality, or other taxing subdivision of any state or territory, not including those assessed against local benefits of a kind tending to increase the value of the property assessed, or third, by the authority of any foreign government," etc.

Section 2295.12 declares: "A tax shall be imposed upon either the fiduciaries or the beneficiaries of estates and trusts as hereinafter provided. *** The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts, whether the fiduciary or the beneficiaries be taxable with reference to the income of such estate or trust. The net income of an estate or trust shall be computed in the same manner and on the same basis as provided in this act for individual taxpayers."

The pertinent part of section 10400.1 reads as follows:

"A tax shall be and is hereby imposed upon any transfer of property, real, personal or mixed, or any interest therein, or income therefrom in trust or otherwise, to any person, association or corporation: ***

(1) When the transfer is by will or by intestate laws of this state from any person dying possessed of the property while a resident of the state. ***

(4) Such tax shall be imposed when any such person or corporation becomes beneficially entitled, in possession or expectancy, to any property or the income thereof, by any such transfer," etc.

An inheritance tax is not a tax imposed upon the property of the estate itself, but upon the privilege of acquiring property by inheritance. Gelsthorpe v. Furnell, 20 Mont. 299, 51 P. 267, 39 L.R.A. 170; In re Touhy's Estate, 35 Mont. 431, 90 P. 170; In re Fratt's Estate, 60 Mont. 526, 199 P. 711; State ex rel. Murray v. Walker, 64 Mont. 215, 210 P. 90; State ex rel. Walker v. Jones, 80 Mont. 574, 261 P. 356, 60 A.L.R. 551. The foregoing decisions demonstrate that although our inheritance law has been changed from time to time, nevertheless under our various statutory provisions on this subject an inheritance tax has always been a tax upon the right to receive property by inheritance, as distinguished from a tax imposed upon the property of the estate of the deceased. Counsel for defendant board, adopting this statement of the law as a premise, argue that since the tax is not a tax upon the property of the estate, the executor or administrator may not deduct such tax under the deduction allowed under section 2295.8, quoted supra.

It will be noted from a reading of that part of the section quoted that only two classes of taxes which are paid or accrued are not the subject of deduction, namely, income taxes under the act itself, and improvement district taxes for local benefits of a kind tending to increase the value of the property assessed. It will be noted throughout the provisions of our inheritance tax law (sections 10400.1 to 10400.51, inclusive) that wherever the imposition is referred to therein upon the right to receive, it is characterized by the use of the word "tax." The Legislature used no other term in referring to these impositions. In referring to deductions it likewise used the word "tax." It will also be noted from an examination of our statutes referring to inheritance tax, supra, that the transfer or inheritance tax payment is made by the executor from the funds of the estate. The burden of paying the income tax, as well as the burden of paying the inheritance tax, is cast upon the executor. Until paid, the inheritance tax is a lien upon the property of the deceased. The personal representatives of the deceased are personally liable for the tax until it is paid. They are authorized to sell the property of the estate for the purpose of obtaining money to pay the tax in the same manner as they may be to pay the debts of the deceased. They are not entitled to a discharge from their trust until the tax is paid. The law plainly makes it their duty to pay the tax out of the estate. The property remaining passes to the beneficiary. When property is transferred without the deduction of the tax, the beneficiary is required to pay it and takes the property subject to the lien of the state for the tax. By whomever the amount may be handed over to the state, the tax is in effect an appropriation by the state of a part of the property of the deceased at the time of death, and the state's part is...