Opinion
Rehearing Denied Jan. 28, 1941
Hearing Granted Feb. 27, 1941
Appeal from Superior Court, Los Angeles County; Jess E. Stephens, Judge.
Proceedings in the matter of the estate’ of Emeline Childs, deceased, wherein Emma Childs Dwight and others instituted a proceeding against Harry B. Riley, State Controller. From an order fixing an inheritance and transfer tax upon gifts by the decedent before her death and upon the estate of decedent, Emma Childs Dwight and others appealed to the Supreme Court, and that court transferred the appeal to the District Court of Appeal for decision pursuant to the provisions of article 6, § 4c, of the Constitution.
Order reversed, with instructions. COUNSEL
Burr & Smith, of Los Angeles (A.J. Cathcart, of Los Angeles, of counsel), for appellants.
James W. Hickey, Inheritance Tax Atty., of Sacramento, Raymond G. LaNoue, Asst. Inheritance Tax Atty., of Los Angeles, and Alvin P. Jacobs, Asst. Inheritance Tax Atty., of Sacramento, for respondent.
OPINION
McCOMB, Justice.
This appeal transferred from the Supreme Court to this court for decision pursuant to the provisions of Article VI, section 4c of the Constitution of the State of California, is from an order of the superior court sitting in probate fixing an inheritance and transfer tax upon (a) gifts by the decedent prior to her death and (b) the estate of decedent.
These are the conceded facts:
The inheritance tax appraiser reported that on September 24, 1935, decedent died and that there had passed to each of appellants, either by transfer prior to decedent’s death or by decedent’s will, property of the fair market value as indicated in the following table:
"Name of Appellant:
Hortense Childs Reynolds
Emma Childs Dwight
Carrie M. Hicks
1920 Transfer:
$15,000.00
$15,000.00
$15,000.00
1926 Transfer:
7,000.00
7,000.00
7,000.00
1927 Transfer:
92,163.51
92,163.51
92,163.51
Probate Residue:
36,909.58
36,909.58
36,909.58
Total:
$151,073.09
$151,073.09
$151,073.09"
It was stipulated at the time of the hearing in the lower court that each of the transfers listed in the foregoing table were irrevocable, absolute, and unconditional, and that the interests of the transferees vested immediately on the making of each transfer and were intended to take effect in possession or enjoyment at or after the death of decedent.
Appellants rely for reversal of the order of the trial judge on this proposition Each appellant’s share of decedent’s estate passing to her at decedent’s death September 24, 1935 (as distinguished from a share passing to such appellant under transfers made prior thereto) should be taxed at the rate and with the exemptions provided by the Inheritance Tax Act of 1935 for a share of such value and should not be taxed at a higher rate reached by superimposing the value of such share on the value of property transferred to such appellant by decedent prior to June 25, 1935 (the effective date of the Inheritance Tax Act of 1935) and without any exemption under the 1935 act.
This proposition we believe to be tenable. The applicable portions of the Inheritance Tax Act of 1935 (Stats. [1935] 1266, Deering’s General Laws of California, Act 8495, vol. Two, p. 3953) are as follows:
"Section 2. A tax shall be and is hereby imposed upon the transfer of any property *** to persons, institutions or corporations, not hereinafter exempted *** said taxes to be upon the market value of such property at the date of death of the decedent and at the rates hereinafter prescribed and only upon the excess over the exemptions hereinafter granted in the following cases:
"(1) When the transfer is by will or by the intestate or homestead laws of this State, from any person dying seized or possessed of the property while a resident of the State, or by any order of court setting apart property and/or making and granting extra or family allowances pursuant to the provisions of the Probate Code.
"(3) When the transfer is of property made by a resident *** by deed, grant, bargain, sale, assignment or gift, made without valuable and adequate consideration (i.e., a consideration equal in money or in money’s worth to the full value of the property transferred):
"(b) Intended to take effect in possession or enjoyment at or after such death, or in which a life income or interest is reserved by the grantor, either expressly or impliedly, or by the grantee promising to make payments to or care for the grantor.
"(10) When more than one transfer within the meaning of any of the preceding subdivisions of this section has been made, either before or after the passage of this act, by a decedent to one person, the tax shall be imposed upon the aggregate market value of all of the property so transferred to such person in the same manner and to the same extent as if all of the property so transferred were actually transferred by one transfer made at the date of the transferor’s death and with the value, rates and exemptions as of that date."
The settled rules of law which are pertinent to the present case are:
(1) All laws for the purpose of imposing or collecting taxes upon the person or property of an individual for a public purpose must find an express statutory authority and all such laws are to be construed strictly in favor of the citizens and against the state (Estate of Potter, 188 Cal. 55, 64, 204 P. 826).
(2) A court may not properly in the exercise of its power to interpret a statute rewrite the same or insert provisions which are not included therein (Seaboard Acceptance Corp. v. Shay, 214 Cal. 361, 369, 5 P.2d 882).
(3) The taxability of a transfer inter vivos is determined by the law in effect at the time the transfer is made and no subsequent act of the legislature can thereafter add to or diminish the tax or otherwise disturb it (Riley v. Havens, 193 Cal. 432, 434, 225 P. 275; Estate of Potter, supra, 188 Cal. at page 59, 204 P. 826).
(4) An inheritance tax act cannot constitutionally be given a retroactive effect upon transfers which have vested prior to its passage so as to increase the tax upon such transfers and an attempt so to do is void (Estate of Potter, supra, 188 Cal. at page 71, 204 P. 826).
(5) Where a transferee has received gifts of property inter vivos and the title to such property has vested as of the date of the gift but with the intention upon the part of the transferor that the gift shall not take effect in possession or enjoyment until after the death of the transferor, and prior to the death of the transferor the law in force at the time of said gift is amended by changing the tax rate or the amount of exemption, and upon the death of the transferor the transferee receives property of the decedent as a beneficiary, the value of the property transferred by the gift and the value of the property passing by the will cannot be combined for the purpose of ascertaining the tax rate. In such a case the tax rate on the property passing by will is to be calculated and the exemptions therefrom allowed solely upon the value of the property vesting in the beneficiary by virtue of decedent’s will without adding the value of previous gifts. The two transfers are to be treated as separate taxable units, having no relation to each other (Estate of Potter, supra, 188 Cal. at page 74, 204 P. 826; Estate of Brown, 196 Cal. 114, 128, 236 P. 144).
The lower court computed the tax on each appellant’s share by aggregating the value of the transfers prior to decedent’s death and the net value of the estate passing to each appellant by decedent’s will, and allowing one exemption to each appellant of $10,000. The computation was as follows:
"$10,000.00
Exempt
15,000.00 at 1%
$ 150.00
25,000.00 at 2%
500.00
50,000.00 at 4%
2,000.00
14,163.51 at 7%
991.45
36,909.58 at 7%
2,583.67
Total tax
$6,225.12"
The foregoing basis of computation by the lower court was clearly erroneous, as it contravenes the second and fourth rules of law above stated in that (a) it increases the amount of the tax on the various transfers made during the lifetime of the decedent over that which was fixed at the date of the transfers by not allowing proper exemptions and by bringing a larger sum into the higher taxation bracket; and (b) it fails to treat the transfers inter vivos and the transfer by virtue of decedent’s will as separate taxable units for the purpose of exemption and tax rate as provided under the fourth rule above stated. The correct method of computation in accordance with the fourth rule, supra, is as follows:
"$10,000.00
Exempt
15,000.00 at 1%
$ 150.00
25,000.00 at 2%
500.00
50,000.00 at 4%
2,000.00
14,163.51 at 7%
991.45
5,000.00
Exempt
20,000.00 at 2%
400.00
11,909.58 at 3%
357.28
Total tax
$4,398.73"
The various attempts by respondent to support the method of computation by the trial court contravened the first, second, third, and fourth rules of law above stated. The contention that the method used by the trial court does not increase the tax on the gifts inter vivos but merely increases the amount of the tax on the property passing under decedent’s will overlooks the rule of law first stated above that tax statutes must be construed strictly in favor of the taxpayer and it also asks this court to put a construction upon a set of facts which is strained and contrary to that which would be accepted by the ordinary business man or in fact the citizen of average intelligence.
For the foregoing reasons the order from which an appeal has been taken is reversed with instructions to the trial court to compute the taxes in accordance with the views hereinbefore expressed.
We concur: MOORE, P.J.; WOOD, J.