Vance v. South Carolina Tax Commission

• Decision Date: 14 March 1967
• Docket Number: No. 18619,18619
• Citation: 249 S.C. 214,153 S.E.2d 841
• Parties: Robert M. VANCE, Surviving Administrator D.B.N.C.T.A. of the Estate of William J. Bailey, Respondent, v. SOUTH CAROLINA TAX COMMISSION, Appellant.
• Court: South Carolina Supreme Court

Page 841

153 S.E.2d 841

249 S.C. 214

Robert M. VANCE, Surviving Administrator D.B.N.C.T.A. of the Estate of William J. Bailey, Respondent, v. SOUTH CAROLINA TAX COMMISSION, Appellant.

No. 18619.

Supreme Court of South Carolina.

March 14, 1967.

Atty. Gen., Daniel R. McLeod, Joe L. Allen, Jr., Joseph C. Coleman, Asst. Attys. Gen., Columbia, S.C., for appellant.

Henry Hammer, Isadore S. Bernstein, A. Crawford Clarkson, Jr., Columbia, Brown, Jeffries & Mazursky, Barnwell, for respondent.

BUSSEY, Justice.

This action was brought by plaintiff, as the personal representative of the Estate of William J. Bailey, deceased, to recover from the South Carolina Tax Commission the sum of $88,000. with interest thereon, which sum was alleged to be an overcharge or overpayment of South Carolina estate taxes, imposed by the provisions of the South Carolina Estate Tax Law then in force, namely, Sections 65--551 through 65--553 of the 1952 Code of Laws. The case was, by consent, referred to the Master in Equity for Richland County. A stipulation of certain key facts was entered into and the master took testimony and received other evidence. The appeal here is from an order of the Court of Common Pleas confirming the master's report, except as to his computation of interest, and awarding judgment for the plaintiff in the sum of $88,000, with interest thereon at the rate of one-half of one per cent per month from June 24, 1952. Interest awarded was by virtue of the provisions of Section 65--2656 of the supplement to the 1962 Code.

The following facts are stipulated. William J. Bailey died on April 11, 1948. His personal representatives, in order to avoid the accural of penalties and interest, under Section 65--511 of the 1952 Code, on April 11, 1949, paid to the Commission the sum of $150,000, of which $24,468.85 was applied to the estate tax, and $125,531.15 was applied on account of the inheritance tax.

Thereafter, on June 24, 1952, the representatives, on the basis of an initial and tentative determination of the Federal Estate Tax by the Federal Internal Revenue Agent-in-Charge, paid the Commission an additional sum of $239,096.73, of which $35,284.10 was applied on account of inheritance tax; the sum of $203,812.63 was applied on account of the estate tax, and the sum of $30,689.17 was applied to penalties and interest. All payments to the Commission were without protest.

The initial and tentative determination of the valuation of the net assets resulted in an allowable Federal Credit (reduction allowed for State death taxes paid) of $389,096.73. The valuation placed on the net estate by the Internal Revenue Agent-in-Charge was contested by the respondent in a Federal Court action, following payment of the Federal Estate Taxes. As a result of such contest refunds were made by the Federal Government based on a lesser valuation of the assets of the estate than that determined by the Agent-in-Charge, under which lesser valuation there was an allowable Federal credit (reduction allowed for State death taxes paid) of only $301,096.73, or $88,000 less than the allowable Federal credit based on the tentative determination or valuation by the Agent-in-Charge.

On October 29, 1956, formal application was made by the respondent to the Commission for refund of the $88,000, said application being based on the final determination of the Federal Estate Tax by the Federal Government, on October 22nd, 1956, reducing the allowable credit by the amount of $88,000.

On June 19, 1957, application to the Commission for a refund was denied, and on July 3, 1957, application for reconsideration of the denial was filed with the Commission on behalf of the estate. For reasons which we deem not here material, a hearing was not held by the Commission on the application for reconsideration until April 23, 1963. Thereafter, on December 18, 1963, counsel for the estate was informed by letter from the Commission, dated December 13, 1963, that the application for reconsideration and the refund were denied. The present action was instituted on January 11, 1964.

While the contentions of the appellant are several, its basic contention appears to be that the State of South Carolina is entitled to retain the estate tax collected and paid on the basis of the initial and tentative determination by the Federal Revenue Agent-in-Charge of the valuation placed on the net estate and the resulting allowable Federal credit, and that the final determination by the Federal Government of those matters has no effect and bearing on the estate taxes which the State of South Carolina was entitled to receive. With this contention we do not agree.

The pertinent sections of the 1952 Code of Laws imposing the estate tax were Sections 65--551 and 65--553, and Section 65--551 read as follows:

's 65--551. Imposition of tax. A tax in addition to the inheritance tax imposed by chapter 7 of this Title is imposed upon the transfer of the net estate of every decedent, whether a resident or nonresident of the State, when the inheritance tax imposed by said chapter is in the aggregate of a lesser amount than the maximum credit of eighty per cent of the Federal Estate Tax allowed under the Federal Estate Tax Act. In any such case the inheritance tax so provided for shall be increased by an estate tax on the net estate so that the aggregate amount of tax due this State for such inheritance tax and the estate tax imposed by this section shall be the maximum amount of credit allowed under said Federal Estate Tax Act.'

Section 65--553 of the 1952 Code, contained the following provision:

'The amount of the tax as imposed by § 65--551 shall be computed in full accordance with the Federal Estate Tax law in force at the time of the death of the decedent.'

It is clear, we think, that the legislative purpose in enacting the foregoing sections was not to impose upon the estates of decedents any additional burden. The purpose of these statutes was simply to enable the State of South Carolina to take advantage of the 80% Credit provision under the Federal Law, and divert and bring into the treasury of the State of South Carolina money which otherwise would be paid to the Federal Government as a part of the Federal Estate Tax.

Similar statutes were enacted in numerous states with the same intent and purpose as our statutes, and the tax inuring to the benefit of the states by such statutes has become known as a 'windfall' tax. See Willis v. Flournoy, 236 La. 983, 109 So.2d 490; In re Gallagher's Will, 57 N.M. 112, 255 P.2d 317, 37 A.L.R.2d 149; The New York Trust Company, et al. v. Doubleday, 144 Conn. 134, 128 A.2d 192.

The estate tax due South Carolina, by virtue of the said statutes was required to be computed in full accordance with the Federal Estate Tax Law in force at the time. The initial and tentative determination of valuation and the allowable Federal credit by the Internal Revenue Agent-in-Charge was only one step in the procedure under the Federal Estate Tax Law. Such determination was not final and the amount of estate taxes to which South Carolina was entitled by virtue of the statutes could not be determined with finality until there was a final determination by the Federal Government under the Federal Estate Tax Law as to the amount of the allowable Federal credit.

We have no difficulty in concluding that the State of South Carolina has actually received from the estate here involved, by way of estate taxes, the sum of $88,000 more than it was actually entitled to by virtue of the statutes. Our conclusion in this respect is...