Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Fresno County. Donald S. Black, Judge, Super. Ct. No. 06CEG03084
Richard J. Chivaro and Gary D. Hori for Defendants and Appellants.
McGregor, Dahl, Sullivan & Klug, Robert L. Sullivan; Georgeson and Belardinelli, C. Russell Georgeson and Richard A. Belardinelli for Plaintiffs and Respondents.
Gomes, J.
Defendants State of California and John Chiang, Controller for the State of California (Controller) (collectively the State), appeal summary judgment granted in favor of plaintiffs Calvin M. Dyer and Deloris W. Kinghorn, as co-trustees of the Calvin Y. Dyer 1984 Trust (collectively the trustees), on the trustees’ complaint for return of estate taxes. In this case we determine whether under Revenue and Taxation Code section 13302, the Controller may impose California estate tax on an estate whose federal estate tax liability has been reduced, but not eliminated, due to its utilization of the federal credit for tax on prior transfers. The superior court concluded the Controller may not assess California estate tax in such circumstances. We affirm.
Unless otherwise indicated, all statutory references are to the Revenue and Taxation Code.
STATUTORY FRAMEWORK
As set forth in section 13301, there is generally no estate tax in California. This general rule, however, is subject to an exception contained in section 13302, which provides: “Notwithstanding the provisions of Section 13301, whenever a federal estate tax is payable to the United States, there is hereby imposed a California estate tax equal to the portion, if any, of the maximum allowable amount of the credit for state death taxes, allowable under the applicable federal estate tax law, which is attributable to property located in the State of California. However, in no event shall the estate tax hereby imposed result in a total death tax liability to the State of California and the United States in excess of the death tax liability to the United States which would result if this section were not in effect.”
Section 13301 provides, in pertinent part: “Neither the state nor any political subdivision of the state shall impose any gift, inheritance, succession, legacy, income, or estate tax, … on the estate or inheritance of any person or on or by reason of any transfer occurring by reason of a death.”
The “federal estate tax” described in section 13302 is set forth in Internal Revenue Code section 2001, which provides: “A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.” (26 U.S.C. § 2001; see Hoffman v. Connell (1999) 73 Cal.App.4th 1194, 1197-1198 (Hoffman).) The “credit for state death taxes” described in section 13302 is set forth in Internal Revenue Code section 2011(a), which “permits legal representatives of estates to deduct from the total federal estate tax obligation a limited, scheduled credit for all death taxes actually paid to any state on account of property taxable as part of the gross federal estate.” (Estate of Fasken (1977) 19 Cal.3d 412, 418 (fns. omitted); see Hoffman, supra, 73 Cal.App.4th at p. 1198.) “The interaction between section 13302 and the federal tax statutes we have quoted results in what the parties describe as a ‘pickup’ tax; i.e., California picks up and imposes an estate tax equal to the credit which the federal tax law allows. Section 13302 does not impose a burden in addition to that which ordinarily would be imposed by the federal estate tax. Instead, a portion of what would otherwise be paid to the federal government is paid to the state.” (Hoffman, supra, 73 Cal.App.4th at p. 1198.)
Section 2011, subdivision (a) provides, in relevant part: “The tax imposed by section 2001 shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State … in respect of any property included in the gross estate.…”
The state death tax credit is calculated using a table set forth in Internal Revenue Code section 2011, subdivision (b). Beginning with a taxable estate (gross estate less exemptions and expenses) in excess of $40,000, that subdivision provides for a credit of state death taxes of 0.8 percent. The largest percentage credit, 16 percent, is reached on a taxable estate totaling more than $10,040,000. (Int.Rev. Code, § 2011(b); see also Estate of Fasken, supra, 19 Cal.3d at p. 418, fn. 6.)
The credit for state death taxes under Internal Revenue Code section 2011 represents only one of five credits provided by the federal code. One of the other credits is for payment of tax on prior transfers, which is allowed under Internal Revenue Code section 2013 for federal estate taxes paid on a recent transfer of the estate’s property. That section provides for a credit for “all or a part of the amount of the Federal estate tax paid with respect to the transfer of property … to the decedent by or from a person … who died within 10 years before, or within 2 years after, the decedent’s death.…” The amount of the credit varies, depending on the period of time that has passed between the two deaths. (Int.Rev. Code, § 2013(a) and (b).) The federal credit for state death taxes is based on the gross estate before the credit for previously taxed property is taken, which insures that the state will receive the maximum benefit. (Estate of Callaway (1968) 263 Cal.App.2d 795, 798.)
The other three credits include deductions for federal gift taxes (Int.Rev. Code, § 2012), foreign death taxes (Int.Rev. Code, § 2014), and death taxes on remainders (Int.Rev. Code, § 2015.)
FACTUAL AND PROCEDURAL BACKGROUND
In 1984, Calvin Y. Dyer and Dora F. Dyer formed the Calvin Y. Dyer 1984 Trust (the Dyer Trust), which was subsequently amended and restated in 2000, and amended in 2001 and 2002. Calvin Y. Dyer died in February 2002, and Dora F. Dyer died nine months later, in November 2002.
In August 2003, the trustees filed federal and State of California estate tax returns for Dora F. Dyer’s estate (the DFD estate). The federal return lists a total federal estate tax due of $4,682,642, which is computed by deducting a $489,631 credit for tax on prior transfers from a federal estate tax of $5,172.273. No credit is taken on the federal return for state death taxes. The California return lists zero as the “total state death tax credit allowable for federal estate tax purposes” and as the amount of refund or balance due. A statement attached to the California return explains: “[The DFD] estate is entitled to a credit against the Federal Estate Tax for tax paid on prior transfers, pursuant to Internal Revenue Code § 2013. The amount of credit available to [the DFD] estate is based on the Federal Estate Tax actually paid. Accordingly, if a state death tax credit were claimed under Internal Revenue Code § 2011, the credit for tax paid on prior transfers would be reduced, thereby increasing the amount of Federal Estate Tax payable. [¶] California Revenue and Taxation Code § 13302 provides, in pertinent part, ‘However, in no event shall the estate tax hereby imposed result in a total death tax liability to the State of California and to the United States in excess of the death tax liability to the United States which would result if this section were not in effect.’ Because imposition of any tax pursuant to Revenue and Taxation Code § 13302 would reduce the federal credit for tax on prior transfers under Internal Revenue Code § 2013, thereby resulting in a total tax liability to the State of California and to the United States in excess of the death tax liability which would be payable to the United States if § 13302 were not in effect, there is no estate tax payable to the State of California.”
The Internal Revenue Service did not examine the federal return and the statute of limitations for assessing a federal tax deficiency has expired. The Controller, however, did examine the California return and in April 2006, issued a Notice of Estate Tax Deficiency which assessed an estate tax of $905,946, plus interest, against the DFD estate (the original deficiency notice). The amount assessed was equal to the maximum amount of federal credit for state death tax allowable under 26 United States Code section 2011(b), but it violated the provision of Revenue and Taxation Code section 13302 which requires the total death tax liability to California and the United States never exceed the death tax liability which would be owed to the United States alone in the absence of the California estate tax imposed by section 13302.
The parties do not dispute that when the federal estate tax is calculated taking the maximum state death tax credit of $905,946 into consideration, the total amount of federal and California taxes payable is increased by $116,328. The parties assert this is because the credit for tax on prior transfers decreases when the maximum state death tax is taken, thereby increasing the California and federal estate tax liabilities.
The trustees submitted a written protest to the Controller seeking withdrawal of the original deficiency notice because it violated the second sentence of section 13302. The trustees explained they did not claim a state death tax credit or pay the state death tax because while doing so would decrease the federal tax, when the federal and California taxes were considered together, the total tax burden on the estate would be increased. The Controller subsequently admitted the original deficiency notice violated the second sentence of section 13302. Eventually, the parties agreed the assessment of California estate tax in the amount of $789,618 would bring the assessment into compliance with the second sentence of section 13302. The trustees, however, explained in a letter to the Controller that while this revised amount of California estate tax complied with the second sentence of section 13302, it violated the first sentence of section 13302, which imposes a California estate tax only in the amount of the maximum allowable amount of the federal credit for state death taxes. The Controller, on the other hand, asserted the $789,618 assessment fell squarely within the provisions of section 13302 and California Code of Regulations, title 2, section 1138.14(b).
In June 2006, the State issued a revised Notice of Estate Tax Deficiency assessing a California estate tax deficiency in the sum of $789,618, plus interest (the revised deficiency notice), which is $116,328 less than the maximum allowable federal credit for state death taxes under 26 United States Code section 2011(b). In July 2006, the trustees paid the revised estate tax deficiency, plus interest. After paying the revised estate tax deficiency, the DFD estate filed a supplemental federal estate tax return in which the estate claimed a $789,618 state death tax credit and deducted as an administrative expense the accrued interest paid with the tax deficiency.
The trustees filed this lawsuit in September 2006, seeking a refund of the amount paid to the State. The trustees subsequently filed a motion for summary judgment, which the Controller opposed. In a written order, the court granted the motion. The court found section 13302 to be unambiguous in providing that the State may assess California estate taxes only in an amount equal to the maximum amount of the federal credit for state death taxes allowable under Internal Revenue Code section 2011, and because the amount of estate tax the State was seeking to assess, namely $789,618, was other than the maximum allowable amount for the state death tax credit, the assessed tax violates section 13302 and must be refunded. The court subsequently entered judgment in the trustees’ favor in the amount paid to the State.
DISCUSSION
This case concerns the proper interpretation of section 13302. That section consists of two parts: (1) the first sentence, which provides that whenever a federal estate tax is payable to the United States, a California estate tax is imposed “equal to the portion, if any, of the maximum allowable amount of the credit for state death taxes, allowable under the applicable federal estate tax law, which is attributable to property located in the State of California”; and (2) the second sentence, which provides that “[h]owever, in no event shall the estate tax hereby imposed result in a total death tax liability to the State of California and the United States in excess of the death tax liability to the United States which would result if this section were not in effect.”
The first sentence imposes an estate tax on a decedent’s estate “equal to … the maximum allowable amount of the credit for state death taxes, allowable under the applicable federal estate tax law.” (§ 13302.) It is undisputed that the maximum allowable state death tax credit on DFD’s estate, calculated under Internal Revenue Code section 2011, is $905,946. The second sentence provides that the California estate tax “hereby imposed” cannot result in a greater state and federal death tax liability than would result if section 13302 were not in effect. (§ 13302.) It is undisputed that if the maximum allowable state death tax credit of $905,946 were imposed DFD’s estate would incur a greater state and federal death tax liability than if the credit were not imposed. This is because taking the maximum allowable state death tax credit of $905,946 on the DFD estate’s federal estate tax return results in a reduction in the federal credit for tax on prior transfers from $489,631 to $373,303, thereby increasing the DFD estate’s total California and federal estate tax liability by $116,328.
As the trustees point out, the Dyer trust did not hold any non-California assets, therefore there is no issue of apportionment of the maximum allowable state death tax credit between California and other states. Accordingly, the portions of section 13302 concerning apportionment are irrelevant here.
Since imposing the maximum allowable amount of the state death tax credit in this case violates the second sentence of section 13302, the Controller adjusted the state death tax credit downward to $789,618, which would allow the State to obtain a share of the federal estate death tax while permitting DFD’s estate to claim the maximum credit for tax on prior transfers. The issue presented in this case is whether the Controller may do so, i.e. whether the Controller may collect California estate taxes in an amount less than the maximum allowable state death tax credit when taking the maximum credit would result in payment of California and federal estate tax liability that exceeds the federal estate tax liability that would be incurred if the state death tax credit were not taken.
The parties do not dispute that our review of this issue is de novo. De novo review is the appropriate standard of review both for summary judgment rulings (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860; Code Civ. Proc., § 437c, subds. (c) & (o)(2)) and where, as here, the material facts are undisputed and we must determine whether the trial court properly construed the underlying statutory provisions and applied them to the undisputed facts. (Regents of University of California v. Superior Court (1999) 20 Cal.4th 509, 531; Rosse v. Desoto Cab Co. (1995) 34 Cal.App.4th 1047, 1050.)
The trustees contend the statute clearly requires compliance with both of its parts, i.e. the California estate tax “may be imposed only in the amount of the maximum state death tax credit allowable under federal law … [and] the imposition of that ‘maximum amount’ so imposed must not result in an increase in the estate’s overall state and federal death tax burden.” The trustees assert that if the imposition of the maximum state death tax credit results in an increased California and federal death tax burden, then California is not entitled to collect any estate tax. The Controller, on the other hand, asserts section 13302 allows for an assessment of California estate tax that is less than the maximum allowable state death tax credit when imposing the maximum would result in a total increased tax burden.
In evaluating the parties’ interpretations of section 13302, familiar rules of statutory interpretation guide our task. The fundamental purpose of statutory construction is to ascertain the lawmakers’ intent, so as to effectuate the law’s purpose. In determining the intent, we begin by examining the statute’s language. (Palos Verdes Faculty Assn. v. Palos Verdes Peninsula Unified Sch. Dist. (1978) 21 Cal.3d 650, 658.) Ordinarily, when the words of a statute are unambiguous, courts should apply the plain meaning of the statutory language and “if there is a flaw in the statutory scheme, it is up to the Legislature, not the courts, to correct it.” (Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 334.) Under the so-called “plain meaning” rule, words used in a statute should be given the meaning they bear in ordinary use. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.)
The first sentence of section 13302 imposes a California estate tax “equal to … the maximum allowable amount of credit for state death taxes, allowable under the applicable federal estate tax law.… ” While the Controller concedes that under federal law, the maximum state death tax credit is determined pursuant to Internal Revenue Code section 2011, which in this case results in a state death tax credit of $905,946, he asserts that in cases where, as here, the decedent’s estate is entitled to claim a credit for tax on prior transfers pursuant to Internal Revenue Code section 2013, the maximum allowable state death tax credit is reduced. He argues the phrase “allowable under the applicable federal estate tax law” in section 13302 “means that California’s estate tax is not limited to just Internal Revenue Code section 2011,” and the applicability of other federal estate tax provisions must be harmonized along with Internal Revenue Code section 2011 to determine the ultimate sum California may impose as its estate tax. This argument is based on the Controller’s contention that a taxpayer may not waive, in whole or in part, the credit for tax on prior transfers. From this, the Controller reasons the trustees had no choice but to claim a credit for tax on prior transfers of $489,631, which in turn “pared down” the credit for state death taxes the trustees could claim under Internal Revenue Code section 2011. Under the Controller’s reasoning, the section 13302 “maximum allowable amount of the credit for state death taxes, allowable under the applicable federal estate tax law” then became the reduced amount, namely the $789,618 contained in the revised deficiency notice.
In support of its argument, the Controller cites the Internal Revenue Service’s (IRS) Revenue Ruling 73-47 (1973-1 Cum. Bull. 397). That revenue ruling addressed the issue of whether, for purposes of computing the credit for tax on prior transfers under Internal Revenue Code section 2013, it is necessary to take into account every previously taxed transfer the decedent received during the period starting 10 years before and ending two years after his death. In the situation before the IRS, the decedent had received legacies from the estates of two deceased relatives, his uncle and grandmother, who died three years and seven years, respectively, before the decedent. The legacies received as a result of the two deaths entitled the taxpayer to two separate credits for tax on prior transfers under Internal Revenue Code section 2013, but it was to the taxpayer’s advantage to only claim the credit for the transfer from the uncle, as that would result in a greater credit and less federal estate tax liability. The taxpayer asked the IRS for advice on whether the taxpayer could elect to claim only one credit. The IRS held the taxpayer was required to claim both credits, as the Internal Revenue Code section 2013’s use of the word “shall” indicates the mandatory nature of the credit for tax on prior transfers, and therefore the credit “may not be waived, in whole or in part, and … each transfer meeting the requirements of section 2013 must be taken into account in computing the credit.” (IRS Revenue Ruling 73-47 (1973-1 Cum. Bull. 397).)
Based on this Revenue Ruling, the Controller asserts that since the credit for tax on prior transfers cannot be partially waived, DFD’s estate was required to claim the maximum tax on prior transfer credit available to it, namely $489,631, which was calculated without taking into consideration the maximum credit for state death taxes. The Controller next asserts DFD’s estate was required to then determine the amount of state death taxes it could claim that would allow it to also claim the maximum credit for tax on prior transfers, which in this case had the effect of reducing the maximum state death tax credit that could be claimed under Internal Revenue Code section 2011 from $905,946 to $789,618. The flaw in the Controller’s reasoning, however, is that the Revenue Ruling, while stating that the credit for tax on prior transfers cannot be waived in whole or part, does not deal with the issue here, i.e. whether the taxpayer may claim a credit for the tax on prior transfers in a reduced amount when the reduction is caused by the taxpayer claiming the maximum state death tax credit allowable under Internal Revenue Code section 2011.
While Internal Revenue Code section 2011 apparently does not require a taxpayer to claim the maximum credit for state death taxes that is allowed under that section, as Internal Revenue Code section 2011(b) provides that the state death tax credit “shall not exceed” the amounts contained in the table listed there, nowhere in Internal Revenue Code sections 2011 or 2013 does it state that the maximum state death tax credit that may be claimed must be reduced if the taxpayer is claiming a credit for tax on prior transfers under Internal Revenue Code section 2013. The Controller does not cite to any federal law that prohibits a taxpayer from claiming the maximum state death tax credit allowed based on the table provided in Internal Revenue Code section 2011(b) and claiming a credit for tax on prior transfers under Internal Revenue Code section 2013 in a reduced amount. As the trustees point out, the only provision of the federal estate tax law that determines the credit for state death taxes is Internal Revenue Code section 2011. That section provides a table for calculating the maximum tax credit, which the parties agree in this case equals $905,946. (See Int.Rev. Code, § 2011(b).) Since the Revenue Ruling the Controller relies on does not address the issue of the interplay of these two credits, we must agree with the trustees that when section 13302 refers to “the maximum allowable amount of the credit for state death taxes allowable under applicable federal estate tax law,” the section is referencing only Internal Revenue Code section 2011. Accordingly, we reject the Controller’s argument that Internal Revenue Code section 2013 is an “applicable federal estate tax law” described in section 13302 that reduces the maximum allowable amount of state death tax credit that may be claimed.
Thus, under the first sentence of section 13302 the “California estate tax” that is “hereby imposed” is “equal to … the maximum allowable amount of the credit for state death taxes, allowable under the applicable federal estate tax law[,]” which amount is determined by Internal Revenue Code section 2011. In this case, the maximum allowable state death tax credit is $905,946. As the parties recognize, if the DFD estate paid this amount to the State, it would result in a total federal and California estate tax liability that exceeds the federal estate tax liability that would be incurred if the state death tax credit were not taken into account, thereby violating the second sentence of section 13302. The issue remains whether the Controller may reduce the state death tax credit below the maximum allowed by Internal Revenue Code section 2011 so that the credit will not result in an increased total federal and California estate tax liability.
The trustees assert the answer must be no because the first sentence of section 13302 only authorizes imposition of a California estate tax equal to the maximum allowable state death tax credit. The trustees point to the second sentence of section 13302, which provides that the estate tax “hereby imposed,” i.e., imposed by section 13302 in an amount equal to the maximum allowable state death tax credit, shall “in no event” result in an increase in the estate’s total California and federal death tax liability. The trustees assert that when the first and second sentences of section 13302 are read together, they unambiguously provide that the California estate tax can only be imposed in an amount equal to the maximum allowable state death tax credit allowable under the applicable federal estate tax law, and when imposition of that amount results in an increase in the estate’s California and federal estate tax burden, California may not collect any estate tax.
The Controller asserts, however, that the second sentence provides a “ceiling restriction” which allows for the reduction of the California estate tax when the maximum allowable state death tax credit causes an increased estate tax burden. In making this assertion, the Controller points to California Code of Regulations, title 2, section 1138.14 (regulation 1138.14). This regulation provides: “(a) In no event shall the California Estate Tax result in a total death tax liability to the State of California and the United States in excess of the death tax liability to the United States which would result if Section 13302 of the Revenue and Taxation Code were not in effect. However, in no event shall the California Estate Tax be less than the credit for state death taxes (adjusted under Section 13304 if applicable) less the credits that would have been claimed on lines 17 through 19 on page 1 of the federal estate tax return if there had been no California Estate Tax. [¶] (b) Two calculations of the estate tax are made: one computing the total state and federal estate tax due and one computing the federal estate tax assuming no California estate tax. The sum obtained in the first computation cannot exceed the amount determined in the second computation. If it does, the California Estate Tax is reduced by the excess. [¶] This may be stated by the following formula: [¶] CET + FET <= FET assuming no CET.” (Cal.Code Regs., tit. 2, § 1138.14.)
The first sentence of subdivision (a) of regulation 1138.14 restates the second sentence of section 13302, i.e., that the imposition of the California estate tax must not increase the total of the California and federal estate tax liability. The second sentence of subdivision (a) and all of subdivision (b) provide, in effect, that if the imposition of the California estate tax results in an increased tax burden, the Controller can assess a California estate tax in an amount less than the maximum federal credit for state death taxes. Section 13302, however, does not specifically authorize a reduction in the California estate tax in such situations. As discussed above, the first sentence of section 13302 imposes a California estate tax equal to the maximum allowable amount of state death tax credit available under Internal Revenue Code section 2011. The second sentence of section 13302 states that “in no event shall the estate tax hereby imposed” result in an increased death tax liability to California and the United States. The term “hereby imposed” clearly refers to the tax imposed in the first sentence of section 13302, i.e., the maximum allowable amount of state death tax credit available under Internal Revenue Code section 2011. The second sentence of section 13302 does not state that the amount “hereby imposed” is reduced when the total death tax liability increases, but regulation 1138.14 does allow for a California estate tax reduction in such a situation. On this point the regulation is directly contrary to the plain unambiguous language of the first sentence of section 13302, which requires the California estate tax to equal the maximum allowable credit for state death taxes.
Regulation 1138.14 cannot insert into the statute what is not there. California voters adopted section 13302 on June 8, 1982 as a ballot initiative statute (Proposition 6). (See Historical and Statutory Notes, West’s Ann. Rev. & Tax. Code (1994 ed.) foll. §§ 13301 & 13302, pp. 340-341.) Section 5 of Proposition 6 provides: “Except to provide for the collection and administration of the tax imposed by Section 13302 of the Revenue and Taxation Code in a manner not inconsistent with this act, the Legislature shall not amend or repeal this act other than by an enactment which becomes effective only when approved by a majority of the electors voting thereon in a statewide election.” (See Historical and Statutory Notes, West’s Ann. Rev. & Tax. Code (1994 ed.) foll. § 13301, pp. 340-341.) Thus, the only way the provisions of section 13302 can be amended is by an enactment approved by a majority of voters in a statewide election. It cannot be amended by the Legislature and certainly cannot be amended by the Controller through regulation.
“Administrative agencies have only the powers conferred on them, either expressly or impliedly, by the Constitution or by statute, and administrative actions exceeding those powers are void. [Citation.] To be valid, administrative action must be within the scope of authority conferred by the enabling statutes. [Citation.] We recognize that the courts usually give great weight to the interpretation of an enabling statute by officials charged with its administration, including their interpretation of the authority vested in them to implement and carry out its provisions. [Citation.] But regardless of the force of administrative construction, final responsibility for interpretation of the law rests with courts. If the court determines that a challenged administrative action was not authorized by or is inconsistent with acts of the Legislature, that action is void. [Citation.] [¶] These principles apply to the rulemaking power of an administrative agency, which is limited by the substantive provisions of law governing that agency. [Citations.] To be valid, an administrative regulation must be within the scope of the authority conferred by the enabling statute or statutes. [Citations.] No matter how altruistic its motives, an administrative agency has no discretion to promulgate a regulation that is inconsistent with the governing statutes. [Citation.]” (Terhune v. Superior Court (1998) 65 Cal.App.4th 864, 872-873; see also Yamaha Corp. of America v. State Board of Equalization (1998) 19 Cal.4th 1, 7-8, 12; Morris v. Williams (1967) 67 Cal.2d 733, 748 (Morris).)
In reviewing the validity of a regulation, our function is to inquire into its legality, not its wisdom. (Morris, supra, 67 Cal.2d at p. 737.) Our task “is limited to determining whether the regulation (1) is ‘within the scope of the authority conferred’ (Gov. Code, § 11373) and (2) is ‘reasonably necessary to effectuate the purpose of the statute’ (Gov. Code, § 11374).” (Agricultural Labor Relations Bd. v. Superior Court (1976) 16 Cal.3d 392, 411.) We conduct an independent examination (see 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 271-272) and determine whether in enacting the specific rule the Controller “reasonably interpreted the legislative mandate.” (Fox v. San Francisco Residential Rent etc. Bd. (1985) 169 Cal.App.3d 651, 656.)
Here, to the extent regulation 1138.14 authorizes the Controller to impose a California estate tax in an amount less than the maximum allowable amount of the credit for state death taxes, it contravenes the plain language of the first sentence of section 13302. Moreover, to the extent the regulation amends, rather than contravenes, the first sentence of section 13302, it violates section 5 of Proposition 6, which prohibits legislative amendments to section 13302. The second sentence of section 13302 is unambiguous in its statement regarding the “ … estate tax hereby imposed …,” which can be interpreted only as the maximum amount of the state death tax credit allowed under federal law. If the voters intended to impose the tax in an amount other than the maximum credit, they easily could have done so by imposing a tax “up to” or “not more than” the maximum credit, but they did not. Since section 13302 is silent on whether the Controller may impose a California estate tax in an amount other than the maximum state death tax credit allowable under Internal Revenue Code section 2011, to the extent regulation 1138.14 authorizes the Controller to do so it is inconsistent with the statute and therefore void. For this reason, there is no merit to the Controller’s suggestion that the second sentence of section 13302 establishes a “ceiling restriction” which authorizes the imposition of a tax in some amount other than the maximum federal credit.
The Controller seems to be arguing that as long as the taxpayer’s total California and federal estate tax burden is not increased, the taxpayer can be forced to pay California an estate tax in an amount less than the maximum allowable state death credit provided under Internal Revenue Code section 2011. As explained by the court in Hoffman in rejecting an argument that since the pickup tax does not place an additional burden on the estate, but instead takes a portion of the credit which the federal tax law allows, California should rely on federal tax principles when determining whether any California estate tax is due: “[w]hile the pickup tax is based on and closely related to the federal tax credit, the state can only collect that tax when it is authorized to do so under California law.” (Hoffman, supra, 73 Cal.App.4th at p. 1203.) As we have explained above, California law does not allow the Controller to collect estate tax when the maximum state death tax allowable under Internal Revenue Code section 2011 increases the taxpayer’s total estate tax burden. We decline to allow the state to act in a manner contrary to California law.
The Controller contends that construing section 13302 to disallow collection of California estate tax when the maximum state death tax allowable under Internal Revenue Code section 2011 results in an increased California and federal estate tax burden would lead to absurd consequences. Specifically, the Controller points out that if claiming the maximum state death tax allowable under Internal Revenue Code section 2011 results in an increased California and federal estate tax burden of even one dollar, California would not be entitled to collect any estate tax, thereby resulting in a loophole that allows the estate to avoid paying California estate tax. We are not persuaded.
When interpreting an ambiguous statute, “‘consideration must be given to the consequences that will flow from a particular interpretation. [Citation.] In this regard, it is presumed the Legislature intended reasonable results consistent with its expressed purpose, not absurd consequences.’” (Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 235.) As discussed above, however, we do not find section 13302 ambiguous. True, in rare cases, statutory ambiguity is not a condition precedent to further interpretation, and the literal meaning of the words may be disregarded to avoid absurd results. But this approach is reserved for “extreme cases” where the absurdity is patent. (Unzueta v. Ocean View School Dist. (1992) 6 Cal.App.4th 1689, 1698 (Unzueta).) We must exercise caution using the “absurd result” rule; otherwise, the judiciary risks acting as a “‘super-Legislature’” by rewriting statutes to find an unexpressed legislative intent. (Id. at pp. 1699-1700.)
This is not an extreme case where the absurdity is patent. The Controller is correct that if the total California and federal estate tax liability is increased even slightly over the federal estate tax liability that would be imposed if the state death tax credit were not taken into consideration, the state is not entitled to collect any estate tax. According to the analysis of Proposition 6 by the legislative analyst, however, the measure requires the state to levy a California estate tax “equal to the maximum federal credit allowable,” the effect of which is “to provide the state a portion of the estate taxes which would otherwise go to the federal government,” and states that a “taxpayer’s total combined state and federal tax would not be increased under this provision, because the California estate tax would be offset against the federal tax.” (Ballot Pamp., Primary Elec. (June 8, 1982) analysis of Proposition 6 by legislative analyst, p. 25.) From this analysis, it appears the intent of the statute is to entitle California to collect estate tax equal only to the maximum federal credit allowable. Although the imposition of a lower California estate tax would not increase the total tax burden in this case, nothing in the pamphlet’s language suggests the intent to impose a lower California estate tax when the total California and federal estate tax burdens are increased due to imposition of the maximum federal credit allowable. Therefore, we do not disregard the literal for an embellished reading of the statute that would impose a reduced California estate tax in such situations. (See Unzueta, supra, 6 Cal.App.4th at pp. 1698, 1700.) Such a reading would not be statutory interpretation, but statutory revision with no basis in the statutory language or legislative history.
Finally, the Controller contends a decision of a Maryland appellate court, Comptroller v. Phillips (2005) 384 Md. 583, 865 A.2d 590 (Phillips), is consistent with his position. In Phillips, the court held the Comptroller of the Maryland treasury could not impose Maryland estate tax on an estate that had no federal estate tax liability due to its utilization of the federal credit for tax on prior transfers. (Id. at pp. 590, 598-599.) In so holding, the court interpreted the Maryland estate tax statutes, which provide that the “‘Maryland estate tax is the amount, if any, by which the federal credit exceeds’” the total of certain specified death taxes other than the Maryland estate tax, and defines the “‘federal credit’” as “‘the maximum credit for death taxes paid to any state that is allowable under § 2011 of the Internal Revenue Code against the federal estate tax of a decedent.…’” (Id. at p. 592.) The court concluded the definition of “federal credit” plainly meant that “calculating Maryland’s estate tax … requires using as much of the federal state death taxes credit as federal law permits,” and thus “when no federal estate tax is owed, because the estate has taken the tax on prior transfers credit or for any other reason, then there is no state death taxes credit ‘allowable.’” (Id. at p. 598.)
The Controller asserts that this decision shows that Maryland would have been able to collect its estate taxes in an amount less than the maximum state death tax credit if the tax on prior transfers credit did not reduce the amount of federal tax owed to zero. We are not convinced, as the Maryland court was not addressing that issue. More importantly, the court was not addressing the issue presented here, namely the interpretation of section 13302. For these reasons, we do not find the Phillips decision instructive and it has no bearing here.
In sum, we conclude that section 13302 is clear that in order for a California estate tax to be assessed, the tax must: (1) be in an amount equal to the maximum allowable amount of the credit for state death taxes allowable under Internal Revenue Code section 2011; and (2) not result in a total state and federal death tax liability in excess of the liability which would be owed to the United States in the absence of the tax imposed by section 13302. In this case, the tax the Controller assessed, $789,610, met the second of these requirements, but failed to meet the first requirement. Accordingly, the tax was assessed in violation of California law and, in accordance with the trial court’s judgment, must be refunded.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondents.
I CONCUR: Vartabedian, Acting P.J.
DAWSON, J.
I dissent because I believe a reasonable construction of Revenue and Taxation Code section 13302 (§ 13302), and one that comports with the voters’ intent in adopting the provision, allows for the reduction of the California estate tax when use of the formula to compute the maximum allowable federal credit for state death taxes results in an increased tax burden to the taxpayer. I disagree with the majority’s contrary reasoning in two respects.
First, I believe the language of § 13302 is ambiguous. This is because of what it leaves out. It states in the first sentence that the California estate tax is to be computed by means of the federal estate tax credit for state death taxes and is to be “equal” to the maximum amount of that credit. In the next sentence, it directs that “in no event shall” imposition of the California estate tax “result” in a greater tax liability than would “result” if § 13302 did not exist. Then, however, the section fails to state what is supposed to happen when use of the federal formula for the state death tax credit does, in fact, “result” in an increased tax liability. In my view, this absence of direction, in combination with use of the terms “shall [not] result”—which seem to defy mathematical reality—place on this court the burden of attempting to discern the intent of the drafters rather than resorting to rules of literalism that ignore their consequences. (2A Singer, Statutes and Statutory Construction (7th ed. 2007) § 46.2, p. 161 [“when a literal enforcement would lead to consequences which the legislature could not have contemplated, courts are bound to presume that such consequences were not intended and adopt a construction that will promote the purpose for which the legislation was passed”].)
Second, I believe the majority’s approach does result in absurd consequences and that the approach contravenes the intent of the voters when they adopted Proposition 6 in 1982. As the majority opinion states, under its interpretation of the statute, “if the total California and federal estate tax liability is increased even slightly over the federal estate tax liability that would be imposed if the state death tax credit were not taken into consideration, the state is not entitled to collect any estate tax.” As the respondent admitted at oral argument, this would be true even if the increase in tax liability were $1. Presumably, even an increase of less than $1 would cause the state to lose entirely its estate tax revenue to the federal government. This all or nothing approach, to my way of thinking, is absurd and could not have been intended by the electorate.
The voters’ intent in enacting Proposition 6 in 1982 is obvious. They intended to do away with state estate and inheritance taxes (see § 13301) but to allow the state to keep that which the federal government otherwise would take. I would effectuate that intent by allowing the controller to reduce an estate tax liability that, together with federal estate tax liability, otherwise would “result” in increased overall liability to the taxpayer.