James W. Hickey, Chief Inheritance Tax Attorney, Sacramento, Walter H. Miller, Senior Inheritance Tax Attorney, Los Angeles, William R. Elam, Associate Inheritance Tax Attorney, Merced, for appellant. J. E. Simpson, Los Angeles, for respondent.
In re SIMPSON'S ESTATE. *
March 8, 1954.
Hearing Granted May 6, 1954.
James W. Hickey, Chief Inheritance Tax Attorney, Sacramento, Walter H. Miller, Senior Inheritance Tax Attorney, Los Angeles, William R. Elam, Associate Inheritance Tax Attorney, Merced, for appellant.
J. E. Simpson, Los Angeles, for respondent.
This is an appeal by the controller of the State of California from an order of the superior court sustaining respondent's objections to the corrected report of the inheritance tax appraiser in the probate proceedings, holding that $7,928.12, paid to respondent by the retirement board of the Los Angeles County Employees Retirement System was not subject to inheritance tax and should be excluded from the report of the inheritance tax appraiser.
There is no dispute relative to the facts, which are:
William E. Simpson and Ethel M. Simpson were married December 31, 1912, and were husband and wife at the time of the death of Mr. Simpson on April 28, 1951. Decedent for many years was an employee of the county of Los Angeles and a member of the Los Angeles County Employees Association. Pursuant to the provisions of the County Employees Retirement Law of 1937 (Government Code, Part 3, secs. 31451 to 31794), he had made contributions to Los Angeles County Employees Retirement Fund between August 1, 1940 and March 31, 1951. These contributions were paid to the fund by salary deductions and other means, and amounted to the sum of $7,676.42. He died while in government service, having previously, on July 9, 1940, pursuant to Government Code Section 31780, by writing designated Ethel M. Simpson, his wife, as the beneficiary to receive the benefits under the act. She received, pursuant to the provisions of Government Code Sections 31780-31781, the sum of $15,856.26, consisting of the following:
Return of contributions paid by decedent to the retirement fund ..... $7,676.42 Interest on the contributions .......................................... 679.84 Contributions by the County pursuant to Government Code Section 31781(b), being 50% of annual compensation ........................ $7,500.00 ---------- $15,856.26
The inheritance tax appraiser in computing the inheritance tax, included the $15,856.26 as taxable as a gift in contemplation of death under Revenue and Taxation Code, sections 13641-13648.
Mrs. Simpson filed written objections to the inheritance tax report, contending that (1) the benefits payable to her under the retirement law were specifically exempt from all state taxation, including inheritance taxation under the express provisions of Government Code, section 31452, and (2) these benefits were not a transfer in contemplation of death because the contributions returned were community earnings and the death benefit was additional compensation under Government Code section 31451.
The trial court sustained her objections and specifically found that the rights and benefits accrued and paid to her were exempt from inheritance taxation under the provisions of Government Code section 31452, and that they were not taxable as a transfer in contemplation of death. The court ordered that the $15,856.26 be excluded from the taxable estate in determining the amount of inheritance tax.
'Exemption from taxation, bankruptcy or insolvency: Execution, garnishment, or attachment: Unassignability. 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.'
An inheritance tax is a tax imposed on the right or privilege of receiving or succeeding to property upon the death of another. (In re Estate of Bloom, 213 Cal. 575, 581, 2 P.2d 753; In re Estate of Barter, 30 Cal.2d 549, 556, 184 P.2d 305; Title 18, California Administrative Code, page 89.)
The sole question thus presented on this appeal is:
Do the words of the Government Code, section 31452, 'are exempt from taxation' include an exemption from an inheritance tax, that is, a privilege tax?
Yes. Appellant contends that section 31452, Government Code, which sepcifically exempts certain rights of any person under the law 'from taxation, whether state, county, municipal, or district' does not exempt those rights and benefits from inheritance taxation; that the exemption applies only from property taxation and does not exempt from a privilege tax.
Such contentions are not sound in the present case. When a statute of another state which has been construed by the courts of that jurisdiction is adopted in California, it will be presumed to have been adopted with the construction so given, unless the language is changed in some way to express a different intent. In construing such a statute the decisions of the courts of the state from which the statute was derived are entitled to great consideration and their interpretation of the statute should ordinarily be followed. Speaking through Mr. Chief Justice Gibson, in Holmes v. McColgan, 17 Cal.2d 426, 430, 110 P.2d 428, 430, our Supreme Court approves the rule thus: "It is a cardinal principle of statutory construction that where legislation is framed in the language of an earlier enactment on the same or an analogous subject, which has been judicially construed, there is a very strong presumption of intent to adopt the construction as well as the language of the prior enactment. * * * A similar principle applies where a statute is patterned after legislation of another state, or of the federal government, or, indeed of a foreign country, which has been judicially construed in the jurisdiction of its enactment." (See also Canfield v. Security-First National Bank of Los Angeles, 13 Cal.2d 1, 14, 87 P.2d 830; Douglas v. State of California, 48 Cal.App.2d 835, 838, 120 P.2d 927; Gregory v. State of California, 77 Cal.App.2d 26, 29, 174 P.2d 863, 175 P.2d 542.)
Prior to the enactment of the retirement law in 1937, which embodied the provisions of section 31452 of the Government Code, supra, substantially identical exemption provisions in the statutes of other states had been interpreted and construed by the courts of those states as exempting the rights and benefits under the act from state inheritance and transfer taxes.
In re Morrison's Estate, (1927), 130 Misc. 438, 224 N.Y.S. 346, 347, was a case in which the State of New York sought to impose an inheritance tax on the amount paid to the estate of a retired school teacher in the New York City public schools from the teacher's retirement fund. Subdivision W of section 1092 of the Greater New York Charter provided as follows:
"W. The right of a person to a pension, an annuity, or a retirement allowance, to the return of contributions, the pension, annuity, or retirement allowance itself, any optional benefit, any other right accrued or accruing to any person under the provisions of this act, and the moneys in the various funds created under this act, are hereby 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 this act specifically otherwise provided."
It will be observed that this statute is substantially identical with Government Code section 31452 in that it exempts from state taxation the rights to the benefits, the benefits themselves, and the moneys in the fund which are exempted by section 31452.
The court held that the amount paid to the estate of the deceased school teacher was exempt from state inheritance and transfer taxes by virtue of subdivision W above quoted. At page 347 of 224 N.Y.S., the court said:
'The right of the legal representatives of the teacher to receive the payments specified by the said subdivision is a right which accrues to them under the provisions of the said act, and any tax upon the transfer to them of the payments in question is clearly prohibited by the act itself.'
Again, in In re Fischer's Estate, (1928), 132 Misc. 204, 229 N.Y.S. 826 the facts were substantially identical with those in the Morrison case. The court cited the Morrison case with approval and held that the payments from the teachers' retirement fund were exempt from the state inheritance and transfer tax.
In 1930 the New York tax law, McKinney's Consol. Laws, c. 60, was revised and Section 249-kk was enacted as a part of the New York Estate Tax Law. Section 249-kk provided: 'No exemption provided for in any other article of this chapter or any other law of this state shall be construed as being applicable in any manner under this article.'
Thereafter, cases arose on facts similar to those of the Morrison and Fischer cases. These later cases held that the amounts paid to a designated beneficiary or to the decedent's estate pursuant to the provisions of the retirement laws were subject to the New York estate tax. These cases were In re O'Donnell's Estate, (1934), 153 Misc. 480, 275 N.Y.S. 445; In re Newton's Estate, (1941), 177 Misc. 877, 32 N.Y.S.2d 473 affirmed (1945), 294 N.Y. 687, 60 N.E.2d 842. The holding in these cases was based solely on the fact that section 249-kk of the New York tax law had repealed by implication the exemption provisions contained in the New York Charter. In the Newton case the court distinguished payments received from the State Employees' Retirement System, which are exempt from the New York estate tax, on the grounds that the State Employees' Retirement System was governed by the Civil Service Law, McKinney's Consol.Laws, c. 7, which superseded section 249-kk. In neither of these cases did the court indicate, mention or imply that the phrase "exempt from any state or municipal tax" did not include an exemption from an inheritance tax. Instead the phrase 'exempt from taxation' was expressly or impliedly interpreted by the court as including exemption from inheritance tax for otherwise there would have been no reason for the court going to great lengths in holding that Section 249-kk impliedly repealed subdivision W of Section 1092 of the Greater New York Charter.
Furthermore, the New York estate or succession tax law was, and is, interpreted as an excise imposed upon the privilege or right of receiving property upon the death of another person. (In re Penfold's Estate, 216 N.Y. 163, 110 N.E. 497; In re White's Estate, 208 N.Y. 64, 101 N.E. 793, 46 L.R.A., N.S., 714.) This tax is therefore considered in both New York and California as a tax upon the right or privilege of receiving or succeeding to property and not as a tax upon the property itself, yet the New York courts failed to interpret the statute as exempting only a tax upon property.
It is clear from a comparison of subdivision W of Section 1092 of the Greater New York Charter quoted above that it is substantially identical with Government Code section 31452. The provisions are so similar that it is a reasonable assumption that section 31452 was copied from or patterned after that provision. Section 31452 was enacted in 1937. The two New York cases of Morrison and Fischer's Estates above cited were decided in 1927 and 1928. It is presumed in accordance with the foregoing rules that the Legislature in enacting section 31452 had knowledge of and was familiar with the New York Charter and the interpretation thereof by the New York courts, and that section 31452 was adopted by the California Legislature including the construction given to the similar statute by the New York courts. That construction was that the death benefits payable to a designated beneficiary or the estate of a deceased employee were exempt from inheritance taxation.
In Re Estate of Potter, 188 Cal. 55, 204 P. 826, the court had under consideration the California Inheritance Tax Acts of 1915 and 1917 and the interpretation thereof. It appeared that the California statute was taken from the New York statute. At page 68 of 188 Cal., at page 832 of 204 P. the Supreme Court said: "Where a statute is adopted from another state or country and such statute has previously been construed by the courts of such state or country, the statute is deemed, as a general rule, to have been adopted with the construction so given it.' Lewis' Suth. on Stats. § 401; Silva v. Campbell, 84 Cal. 420, 424, 24 P. 316. Section 2 of the law was first enacted in this state in 1911. Stats.1911, p. 713, § 1. Subsequent acts have re-enacted it without change, except as to the number. The language is taken from section 1 of the New York Taxable Transfer Act of 1892 (Laws 1892, c. 399), of which it is substantially a literal copy.'
The court, after citing New York cases interpreting the copied language, said with respect to the California statute: 'The act must be understood to have the same meaning that at the time of its passage here had already been given to its language by the courts of New York.'
In addition to the rule above stated, it is further presumed, in interpreting a statute, that the Legislature knew the existing laws and judicial decisions (23 Cal.Jur. (1925) 782, 783, sec. 159).
Section 249-kk of the New York tax law had been adopted by the New York Legislature in 1930 which was seven years before the adoption of the County Employees' Retirement Law of 1937. The case of O'Donnell's Estate, supra, holding that section 249-kk impliedly repealed the exemption statute, was decided in 1934 prior to the enactment of section 31452. However, the California Legislature in enacting the retirement law did not include any repealing provisions similar to section 249-kk and this is evidence of a legislative intent that the rights and benefits of the designated beneficiaries should be exempt from inheritance taxation in accordance with the Morrison and Fischer cases, or otherwise the Legislature would have expressly included a specific provision excluding inheritance taxes from the exemption.
In Free's Estate, (Pa.Orphan's Ct., 1938), 52 York 125, the State of Pennsylvania sought to impose an inheritance tax on the amount paid to the estate of a retired state employee from the State Employees' Retirement Fund. The Act of June 27, 1923, as amended by the Act of May 14, 1929, P.L. 1723, 71 P.S. § 1731 et seq., provided as follows:
'The right of a person to a member's annuity, a State annuity, or retirement allowance, to the return of contributions, any benefit or right accrued or accruing to any person under the provisions of this act, and the moneys in the fund created under this act, are hereby exempt from any State or municipal tax, and exempt from levy and sale, garnishment, attachment, or any other process whatsoever, and shall be unassignable except as in this act specifically otherwise provided.' 71 P.S. § 1747.
This statute is substantially identical with section 31452 in that it exempts from taxation the right to the return of contributions and any benefit or right accruing to any person under the act. The inheritance tax claim presented for allowance was disallowed, the court holding that the amount paid to the estate of the retired state employee from the State Employees' Retirement Fund was exempt from inheritance tax under the section above quoted. In this connection the court at page 125 of 52 York said: 'We take it that the above quoted Act of Assembly means exactly what it says, and that the fund upon which the tax is claimed is not subject to the payment of any transfer inheritance taxes and, therefore, we disallow the claim as presented by the register of wills.'
We thus had in 1937, at the time that the California County Employees' Retirement Law of 1937 was enacted, two exemption statutes of other states substantially identical to section 31452 which had been interpreted by the courts of those states as exempting the rights and benefits of beneficiaries here involved from inheritance taxes.
In the light of the rules governing statutory construction it follows that, at the time the California Legislature enacted the Retirement Law in 1937, the courts of other states had interpreted identical statutes as exempting the rights and benefits under the act from inheritance taxes and that in adopting our statute it presumably used the language as construed by the courts of the other states.
Appellant contends that the words 'are exempt from taxation' as used in section 31452 should be rewritten by the court so as to read 'are exempt from property taxation.' The language of the section is broad and general. The rule is well established that when a statute is general in its terms any exemption or exception from its operation must be specific. (Los Angeles Railway Corp. v. Los Angeles County Flood Control District, 78 Cal.App. 173, 182, 248 P. 532; In re Goddard, 24 Cal.App.2d 132, 139, 74 P.2d 818.)
In Johnson v. City of Glendale, 12 Cal.App.2d 389, 395, 55 P.2d 580, 582, the court said: '[the Act] states no exceptions * * *. If there were to be exceptions, they should have been stated in the act itself. It is not for the courts to create them.'
In Tynam v. Walker, 35 Cal. 634, 640, 642, the court said: 'General words in a statute must receive a general construction, and if there be no express exception, the Court can create none. * * * Unless some ground can be found in the statute for restraining or enlarging the meaning of its general words, they must receive a general construction, and the Courts cannot arbitrarily subtract from or add thereto.'
Since at the time of the adoption of the Retirement Law in 1937 the Legislature is presumed to have known that the New York and Pennsylvania courts had interpreted identical statutes as exempting the rights and benefits from inheritance taxation, the California Legislature, if it had intended to restrict the exemption to property taxes could have written the statute as appellant seeks to rewrite it. However, the Legislature failed to do so even though the New York Statute Section 249-kk had been adopted and interpreted as impliedly repealing the inheritance tax exemption.
It is well established, in the interpretation of statutes, that the Legislature in enacting a statute intended one that was valid, that it should operate prospectively, that the Legislature had some purpose in view, and that the statute should have some effect and not be useless. (San Joaquin, etc., Irrigation Co. v. Stevinson, 164 Cal. 221, 239, 128 P. 924.) It is never presumed that the Legislature intended a useless proceeding or that its act should be a mere form without beneficial purpose. (People v. McCreery, 34 Cal. 432, 439; Bickerdike v. State, 144 Cal. 681, 692, 78 P. 270; 23 Cal.Jur. (1925) sec. 158, p. 781.)
It is not the function of courts to rewrite statutory enactments limiting or enlarging the language of the statute. Since section 31452 does not contain any language limiting the exemption to property taxes it should receive the broad and general interpretation required by its broad language.
In view of the foregoing reasoning, the following cases, relied on by appellant, are inapplicable to the case at bar, to wit, People v. Naglee, 1 Cal. 232; People v. Coleman, 4 Cal. 46; San Diego v. Linda Vista Irr. Dist., 108 Cal. 189, 41 P. 291, 35 L.R.A. 33; Emery v. San Francisco Gas Co., 28 Cal. 345, 346; County of Tulare v. City of Dinuba, 188 Cal. 664, 206 P. 983; Ingels v. Riley, 5 Cal.2d 154, 53 P.2d 939, 103 A.L.R. 1; California Institute of Technology v. Johnson, 55 Cal.App.2d 856, 132 P.2d 61; Douglas Airchaft Co., Inc. v. Johnson, 13 Cal.2d 545, 90 P.2d 572, and City of Los Angeles v. Los Angeles, etc., Co., 152 Cal. 765, 93 P. 1006.
MOORE, P. J., and FOX, J., concur. --------------- * Subsequent opinion 275 P.2d 467.