Kirkwood v. Simpson

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

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, pt. 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, subd. (b).) The inheritance tax appraiser included in his report the $15,856.26 as a taxable gift in contemplation of death (Rev. & Tax. 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

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. (Estate of Bloom, 213 Cal. 575 , 581 [ 2 P.2d 753 ]; Estate of Barter, 30 Cal.2d 549 , 556 [ 184 P.2d 305 ]; Cal. Admin. Code, tit. 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; 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 Ry. Corp. v. Los Angeles Flood Control Dist., 78 Cal.App. 173 , 182 [ 284 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, 26 Cal.App.2d 452 , 458-459 [ 78 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 (now 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 v. Naglee (1850), 1 Cal. 232 [ 52 Am.Dec. 312 ]; People v. Coleman (1854), 4 Cal. 46 [ 60 Am.Dec. 581 ] ; Emery v. San Francisco Gas Co. (1865), 28 Cal. 345 ; Los Angeles v. Los Angeles Independent Gas Co. (1908), 152 Cal. 765 [ 93 P. 1006 ].) [5] 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. (C ity of San Diego v. Linda Vista Irr. Dist. (1895), 108 Cal. 189 [ 41 P. 291 , 35 L.R.A. 33 ].) The constitutional

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 la (the college exemption) to refer only to property

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, eh. 466, as amended by Laws 1917, ch. 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 ], aff. 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 11 exempt from any state or municipal tax, and exempt from levy and sale, garnishment, attachment, or any process whatsoever, and shall be unassignable except as in the Act specifically otherwise provided,” whereas the California exemption clause reads “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.”

Assuming that the Legislature had knowledge of the New York law and its construction (Estate of Potter, 188 Cal. 55 , 68 [ 204 P. 826 ] ; Canfield v. Security-First Nat. Bank, 13 Cal.2d 1 , 14 [ 87 P.2d 830 ]; Holmes v. McColgan, 17 Cal.2d 426 430 [ 110 P.2d 428 ]), it significantly did not adopt the exemption language of the New York law but instead adhered to the legislative pattern of our own California law and the long-prevailing phraseology of the wording “exempt from taxation.” Thus, the word “any” was used in the New York exemption clause, a word broad enough to comprehend, in its enlarged and plural sense, all state or municipal taxes, without limitation. (3 C. J. S. p. 1400; Doble v. Superior Court,

Moreover the New York courts have made relevant distinctions in construing the tax exemption laws. While in In re Morrison’s Estate (1927), supra, 224 N.Y.S. 346 , the sums paid to the deceased employee’s estate from a retirement fund were held not subject to the state transfer tax, in In re Schaeffer’s Estate (1927), reported in the same volume, 224 N.Y.S. 305 , the proceeds of a war risk insurance policy payable to the estate of the insured was held subject to the state transfer tax. In the Schaeffer case it was said at page 307: “Provision exempting property from taxation does not exempt the transfer thereof upon the death of the owner from the succession or transfer tax. The exemption applies to taxation upon the property itself and not to excise or privilege taxes imposed upon the transfer thereof at the death of the owner.” Cited as authority for this conclusion is Plummer v. Coler (1899), 178 U.S. 115 [ 20 S.Ct. 829 , 44 L.Ed. 998 ], holding that United States bonds containing a clause of exemption from state and federal taxation, were nevertheless subject to the New York state transfer tax, which was “regarded as imposed, not on the bonds, but upon the privilege of acquiring property by will or inheritance.” (P. 134; in accord, Greiner v. Lewellyn (1922), 258 U.S. 384 [ 42 S.Ct. 324 , 66 L.Ed. 676 ].) Likewise the tax exemption clause in United States bonds does not preclude their subjection to the federal estate tax. (Murdock v. Ward (1900), 178 U.S. 139

Similarly the federal courts have held that the statutory immunity of war risk insurance from taxation does not include an immunity from excises upon the occasion of shifts of economic interests brought about by the death of an insured. Thus, in United States Trust Co. v. Commissioner of Int. Rev. [C.A.A.2d Cir., 1938], 98 F.2d 734 , the proceeds of a war risk insurance policy payable to a deceased veteran’s widow were held properly includable in his gross estate under a federal estate tax. Recognizing that by “the express provisions of section 28 of the War Risk Insurance Act, 40 Stat. 609 , insurance payable on such a policy is exempted from taxation,” the “estate tax” was distinguished as “an excise tax upon the right to transfer property upon death ... a tax upon the privilege and not upon the property itself,” and therefore there was “no conflict between the exemption statute and the estate tax statute.” (P. 735.) This case went to the Supreme Court of the United States, United States Trust Co. v. Helvering (1939), 307 U.S. 57 [ 59 S.Ct. 692 , 83 L.Ed. 1104 ], and was affirmed. In the latter opinion at page 59, attention was directed to “the provision of the World War Veterans’ Act, 1924, that insurance thereunder ‘shall be exempt from taxation’ ” and the “amendment to that Act of August 12, 1935” providing that “ ‘Payments of benefits due or to become due . . . shall be exempt from taxation. . . . ’ ” It was then said, at pages 59-60; “. . . this amendment served only to clarify the original provision for exemption, without more. Unless resort is had to enlargement by implication, this exemption means only that the proceeds or benefits of a War Risk policy are exempt from taxation. Exemptions from taxation do not rest upon implication. An estate tax is not levied upon the property of which an estate is composed. It is an excise imposed upon the transfer of or shifting in relationships to property at death.” And again the cases of Plummer v. Coler, supra, 178 U.S. 115 , and Murdock v. Ward, supra, 178 U.S. 139 , are cited as supporting authority .

It is argued that since at the time our 1937 retirement act was adopted, the rights, benefits and money in the retirement fund were not subject to any state property tax but only to state “inheritance, gift and income taxes,” the exemption

In view of the foregoing observations, the most that can be said in favor of the extended application of the exemption clause here sought is that the statute may provoke some doubt as to its intended scope. Settled principles of statutory construction require that any doubt be resolved against the right to the exemption. (Sutter Hospital v. City of Sacramento, 39 Cal.2d 33 , 39 [ 244 P.2d 930 ].) Under the