*1 BROOKER, Brooker, Nancy T. KIMBALL as Ex’r of the Estate of Neumann Plaintiff-Appellee, MADIGAN, Attorney v. LISA as General of the State of (Maria Illinois, al., Defendants-Appellants et Pappas, as Treasurer of Cook Defendant). Illinois, County, (1st Division) First District No. 1—07—1876 Opinion February filed HALL, J., dissenting. (Michael General, Madigan, Attorney Chicago Scodro,
Lisa A. Solicitor General, Potts, Attorney General, counsel), ap and Diana M. Assistant for pellants. Ryan Harding, McDermott, Emery
M. Read Moore and M. both of &Will LLP, Chicago, appellee. opinion
JUSTICE GARCIA delivered the of the court: appeal questions This Nancy whether the estate of Neumann Brooker, million, Il- valued at more than is liablе to the State of $68 $3,530,949.32 hinges linois for taxes. estate “death” The answer of the 2003 amendment to the Illinois Estate Generation-Skipping Transfer Tax Act that defines “State tax credit” equal the full at the time of Ms. Brooker’s death as “an amount *** of Internal Code credit calculable under Section 2011 Revenue the Internal allowed under computed would have been as the credit added.) (Emphasis 2001.” in effect on December Revenue Code as 405/2(a) (West the estate’s accepted The circuit court ILCS return, its federal tax claim a credit on that because it did not position Generation-Skipping the Illinois Estate no estate tax is due under Transfer Tax Act. are due does Illinois estate taxes conclude that whether *2 State death a “credit for estate chooses to claim
turn on whether the Rather, Illinois filing. 2011 on its federal taxes” under section Il- transfer within the State every are due on taxable estate taxes computed have been [that] in the amount of “the credit would linois amendment, or not a whether provided by the 2003 and allowed” as Accordingly, we filing. claimed on the estate’s federal credit is remand. reverse and
BACKGROUND interplay analysis, begin with the backdrop As the to our wе then systems. and estate taxation We between the Illinois Reconciliation examine the Federal Economic Growth and Tax Relief (26 (2006)), response §1 et Illinois’s seq. Act of 2001 U.S.C. followed Generation-Skipping and in the 2003 amendment to the Illinois Estate light Transfer Tax Act. then consider the 2003 amendment Finally, proceedings the facts of this case. set out the circuit court we in this case. Tax: 1983-2003 Up
I. Illinois’s Pick
through 2003,
imposed
“pick-up”
a
estate
From 1983
Berek,
Law, 91
D.
Illinois’ New Estate-Tax
“coupled” with federal law.
(2003).
465,
Code
Ill.
2011 of the Internal Revenue
B.J.
465
Section
(2000))
(IRC) (26
up
a credit of
gave
taxpayers
§2011
U.S.C.
they paid to the state.
of the federal estate tax
for taxes
16%
(2006);
Ill.
McGinley Madigan,
v.
366
Berek,
and federal estate
coupling
ing property having transferred a tax situs within the State of Il- 405/3(a) (West 2002). linois.” 35 ILCS The amount tax was “the maximum state tax credit [under allowable Section 2011 or Section respect [IRC]] to the taxable transfer.” 35 ILCS 3(b) (West 2002). 405/2,
II. The 2001 Federal Economic Growth and Tax Relief
Reconciliation Act
2001,
Congress enacted the Federal Economic Growth and Tax
(EGTRRA) (26
Relief
§1
Reconciliation Act of 2001
seq.
U.S.C.
et
(2006)),
January
effective
2002. EGTRRA gradually increased the
federal estate tax base exemption
$700,000
amount from
in 2001 to
million in
gradually repealed
tax,
$3.5
the federal estate
awith
repeal
full
to occur in
gradually phased
out the credit under
977;
2011 for state death taxes.
Ill. App.
3d at
Berek,
Ill.
B.J. at 465. The section 2011 credit
was reduced
25%
(b)(2)(B)
§2011
50%
75% 2004. 26 U.S.C.
Beginning in
the section 2011 credit for state estate
§2011(f) (2006).
taxes
fully repealed.
26 U.S.C.
EGTRRA es
sentially ended the diversion of estate tax revenue from the federal
government
by increasing
to the states
exеmption
the base
for estates
*3
and reducing
Bart,
the federal credit for state estate taxes. S.
This is
Leaving
Scheme,
Me
You:
Departs
the Federal Estate Tax
from
20,
92 Ill. B.J.
21
commentator,
to one
with EGTRRA
government
“the federal
effectively redirecting
state revenue into
piggy
the federal
bank
auspices
Bohl,
under the
of a federal tax cut.”
words,
III. Illinois’s Amended Estate Tax Act EGTRRA, Illinois, As pick-up a result of estate tax scheme with based on the maximum amount of credit that an estate claim may on taxes, its federal tax return for state estate faced a loss of revenue. As the section 2011 year beginning credit was reduced each in 25% 2002, 2005, disappeared until it in corresponding Illinois would see a paid. reduction the state estate taxes To address this reduction stream, legislature Illinois’s tax revenue our amended the Estate Tax (Pub. by enacting 30, 20, Act Act Public 93—30 eff. June 93— 2003).1 has been legislation This App. Ill. 3d at 987. McGinley, among decoupling law enacted complex most “likely as described at 432. Bohl, 13 Elder L.J. to EGTRRA. response the states” in impose an estate Tax Act continued of the Estate Section having a property involving transfer transferred every tax “on taxable (West 2004). 405/3(a) Illinois.” 35 ILCS the State of tax situs within of the estate Act to define the amount Act 93—30 amended the Public Act, credit, 2 of this as defined Section tax due as “the state tax 405/3(b) (West 35 ILCS respect the taxable transfer.” Ms. credit,” persons like Amended section defined “State as: 1, 2003, December January dying Brooker between Section credit calculable under equal to the full “[A]n amount have been the credit would [IRC] or Section 2604 as in effect on December [IRC] under the as computed and allowed Death Tax Credit as the reduction the State without 2011(b)(2) or the termination of the State provided in Section as enacted provided in Section Death Tax Credit as 2011® exclusion [EGTRRA], recognizing applicable the increased but added.) (Emphasis 35 ILCS through December 2005.” amount 405/2(a) (West2004). legislature sought “decouple,” Through Public Act 93— post the Illinois estate tax from separate, computation or preserve Illinois’s attempt of section 2011 in an EGTRRA version App. 366 Ill. 3d at McGinley, stream of revenue. estate revenue entirely tax on Illinois did not create “an new 987. unrelated to the estates”; rather, “it set a new tax rate that was federal estate tax rate.” contemporaneous at 987. Brooker’s Estate Nancy
IV Neumann Her August Nancy passed away Neumann Brooker Brooker, her estate. husband, appointed the executor of T. Kimball tax returns on November The estate filed federal and state estate Generation-Skipping Illinois Estate and 2004. The estate’s liability. The Illinois estate tax reported Transfer Tax Return tax of a tentative reported estate’s return (Pub. Act 94— legislature subsequently Public Act 94—419 1The enacted *4 2005) Act 93— remedy with Public August several deficiencies eff. in this case. Act 94—419 is at issue deficiencies nor Public 30. Neither those tax was the Illinois estate 2At the time of Ms. Brooker’s death recognized the the law only “partially decoupled” from federal law because changes “ignor[ed]” phase-out of the section federal exclusion but Bohl, Elder L.J. at 433. credit.
$12,581,225.49. The estate reduced this amount the maximum uni- $345,800. fied credit of prior estate then claimed a transfer credit $9,205,862.56 for the federal paid estate taxes on Ms. Brooker’s parents’ estates, predeceased each of quick whom her in succession. (2006).3 §2013 See 26 U.S.C. liability reported The net estate tax on $3,029,562.93. the federal return was executor, to the “did any not claim [IRC] Sec-
tion 2011 credit for state death taxes on its federal estate tax return” $9,205,862.56 because the prior transfer credit it received “almost entirely offset the [estate’s] fedеral estate tax liability.” conducting audit,
After an Attorney General concluded the estate was $3,530,949.32 liable for an estate tax of based on the tax rate in 31, 2001, $329,555.27 effect on December plus penalties and interest. Because Ms. Brooker died in eligible she was amount, claim $1,765,474.66, 50% this as a section 2011 credit on §2011(b)(2)(B) (2006). her federal return. See 26 U.S.C. Had the estate $1,765,474.66 claimed the credit, section 2011 its federal liability - $1,264,088.27 would have ($3,029,562.93 been reduced to $1,765,474.66), gross while would have increased to $4,795,037.59 ($3,530,949.32 $1,264,088.27 to the State + government). Basic arithmetic tells us the estate saved - $1,765,474.66 by claiming ($4,795,037.59 a section 2011 credit $3,029,562.93). paid
The estate $3,860,504.59—under total amount due — protest pursuant to the State Officers and Employees Money Disposi- (the Act) (30 (West 2004)). tion Act Protest Monies ILCS 230/2a
V Circuit Court Proceedings 2, 2005, On February the executor filed a six-count verified complaint in the circuit court of Cook County seeking a declaration that the estate was not any liable for Illinois estate taxes. He also sought a temporary restraining preliminary injunction order and directing the Treasurer to maintain disputed payment in a protest fund pending disposition the ultimate of the case. The сourt entered a preliminary injunction day.
The executor filed a multicount complaint second-amended verified July II, only appeal, sought Count count at issue on declaration that equals Estate’s State Tax Credit the amount of IRC Section
2011 credit for state death taxes allowed under IRC Sec- tion inas effect on December on the Estate’s Federal Estate Return.” parents passed away years
3Both more than two but less than four before Ms. Brooker’s death. *5 judgment. partial summary
The filed for parties cross-motions a section 2011 was not “allowed” The contended the estate executor form. The execu- did credit on its federal credit it not claim a because “[bjecause is on the amount of argued the estate tax based tor Illinois ‘allowed,’if no credit is death taxes IRC credit for state Section 2011 payable.” Illinois estate tax ‘allowed’ under IRC Section 2011 no argument continued: resident decedent’s basing the of a “By Illinois estate death taxes ‘al- IRC credit for state estate on the Section 2011 lowed,’ tax due at an Assembly the fixed the Illinois estate General Illinois, actually reported to equal amount to stаte death taxes paid Illinois, IRS on an estate’s and allowed as a credit return, computed the IRC as in ef- federal estate all as under 31, requirements must be fect on December 2001. Each of these to be IRC section credit for death taxes ‘al- met for an state If, case, reported paid as in this no taxes are lowed.’ for is taken and no IRC Section 2011 credit state death taxes return, imposes estate’s the Act used federal estate liability.” Illinois estate tax position contrary
The defendants executor’s asserted the legislature’s avoiding intent rеtain a revenue stream out phase by preserving EGTRRA credit the Illinois estate at defendants, legislature the 2001 rate. intended be taxed the under section 2011 estate to “full amount calculable [IRC],” of the calculated at the 2001 rate. agreed granted
The trial court his position, with the executor’s partial motion that of summary judgment and denied remaining order, In its final the court dismissed the counts defendants. complaint, preliminary of verified second-amended dissolved 2005, injunction February entered on and directed Treasurer to return interest. The dis- paid protest statutory the funds under injunction stayed solution been of the and return of funds have timely appeal. pending this
ANALYSIS interpretation The defendants contend their of amended section They of reverse the prevail. request the Estate Tax should we enter grant summary for the executor and sum- partial judgment mary judgment their favor.
I.
Review
Standard of
of section
appeal hinges
The resolution of this
on the construction
“
Act,
‘[T]he
Act 93—30.
the Estate
as amended
Public
ap-
matter
court and
statute is a
of law for the
propriate for summary judgment.’ [Citation.]” Governmental Interin
surance Exchange
Judge,
v.
221 Ill. 2d
“[Statutes
imposing a tax are strictly
against
construed
*6
government and in
taxpayer.”
favor of the
In re Consolidated Objec
tions
to Tax Levies
490, 496,
School District No.
Ill.
193
2d
739
of
(2000).
N.E.2d 508
“Although
impose
laws which
requirе
taxes
strict
construction, in order to effectuate
legislature,
the intent of the
they
must
given
construction,
be
a reasonable
prejudice
without bias or
against either the
taxpayer.”
state or the
TTX
Whitley,
Co. v.
313 Ill.
App.
536, 543,
(2000),
Airlines,
We with the section ambiguous. is not plain examine the language of the statute and legislature’s intent in enacting it Education, 198), {Board 231 Ill. 2d at according while 2(a) weight legislature’s in enacting intent section pre in its 441). (O’Casek, amended form 229 Ill. 2d at Because the aim of the 2(a) preamended form of section clearly impose estates, was to taxes on we review the 2003 amendment giving aim of it “a reason construction, able prejudice against without bias or either the state or taxpayer.” Co., TTX 3d at 543. grant
We review the trial court’s summary judgment and its Murray of the statute de novo. See Chicago v. Youth Center, 224 Ill. 2d
II. Section above, As stated Public Act 93—30 amended section of the dying persons between define “State tax credit” for Estate Act to under credit calculable equal “an to the full and 2005 as amount *** computed been the credit would have [IRC] as Section 31, 2001.” on December [IRC] as in effect and allowed under the 405/2(a) (West added.) 35 ILCS (Emphasis 30, the enacting Public The contend defendants 93— the full credit equal to collect Assembly intended General In in effect in 2001. other under version calculable Assembly sought preserve words, the defendants assert the General rate. by “locking in” the 2001 the Illinois the collection of the defendants assert: Relying plain language, on the statute’s and allowed computed would have been phrase “The ‘as credit 31, 2001,’ modi- simply as in effect on December [IRC] under the under Section phrase fies the earlier ‘the full credit calculable used—the ver- by specifyingthe of Section 2011 to be 2011’ version phrase The ‘as the credit in effect sion on December (i.e., past computed been uses vеrb tenses would have allowed’ ‘allowed’) past— it in the ‘computed’and because refers a time actually passed when decedent December 2001—and not away.” original.) (Emphasis in defendants, only question relevant how computed [IRS]
credit would have been and allowed back 2001, not case.” any specific [IRS] what allows (Emphasis original.) case, IRS parties agree this $1,765,474.66. Attorney have allowed a tax The Illinois would credit of be General calculated the estate’s tax under the 2001 rate to $3,530,949.32. estate, however, any did claim state tax credit $9,205,862.56, priоr credit of based on transfers because the federal tax to, death it any that it entitled far exceeded credit for state taxes *7 Thus, might claim. estate have received no economic benefit the would of light state tax credit on federal tax return in by claiming a estate its on large tax it no state tax credit the federal credit. Because claimed return, the the estate owes no Illinois its federal tax executor contends court) by of interpretation (adopted death under his the circuit taxes the 2003 amendment. Act, his of Estate Tax the execu-
Relying on strict construction the that because no IRC section 2011 credit was tor contends “al- estate, no 2011 credit was taken the it follows that section The IRS no estate tax was due. executor lowed” the and if only Assembly collect an estate tax argues the intended to General tax due would constitute a transfer of what would the Illinois estate essence, In the execu- paid been in federal estate taxes. otherwise have that impose Tax a tax burden tor contends the Estate Act does not any imposed by exceeds tax burden IRC. The exеcutor asserts: “If *** reported paid taxes are to Illinois and no IRC Section 2011 credit for state death is taxes taken and used on the estate’s federal return, estate tax Act imposes [2003 amendment] no Illinois estate liability.” According executor, simply engaged “the Estate in post-mortem tax planning legally reduce its tax burdens.”
The defendants contend that the estate’s places Tax responsibility Estate Act that on the estate itself to decide it “simply claiming whether owes Illinois estate taxes a state death tax credit its result, on federal estate tax return” is an absurd legislature’s which cannot be the intent. is dispute parties
There little between the legislature’s that the in purpose amending post-EGTRRA section was to retain state by decoupling tax revenue the Illinois estate tax from the federal state (“With death McGinley, pas tax credit. See at [EGTRRA], sage phased taxes, of which out federal estate the Illinois legislature decoupling was faced with either or losing its rates *** [Accordingly, revenue. Public Act 93—30 in passed pursuit of] revenue”). the legitimate purpose avoiding of a of made loss As clear the Stаte faced a loss if of revenue it allowed the amount of taxes slowly disappear gradual estate with the elimina tion state tax credit under It beyond EGTRRA. is also conten tion the overwhelming purpose is clearly Estate title, parties reflected its to collect What separates revenue. application the Estate Tax Act’s to the Brooker estate.
Relying plain language, highlights on the statute’s the executor legislature’s amended, use the term “allowed” section as pre-EGTRRA rather than used in “allowable” as statute. In his view, before a сredit is under 2011 in 2001 “allowed” three (1) showing events must occur: files tax return a estate a state (2) (3) due; State; pays estate taxes due to the estate then claims the credit explains federal return. executor that the “unique” and “unusual” circumstances impacted of this case triggering three temporal proximity events. The close of Ms. Brooker’s parents’ death and her a large deaths allowed claim prior federal credit transfers under section Based on this credit, large it not to chose reduce its federal further by claiming return, filing a section 2011 credit on its federal a state due, showing tax return a tax a tax paying State. Because case, requisite none of the three events occurred this the credit was not “allowed” under the 2001 version of section 2011. The executor “allowed” “term art” that we must asserts constitutes taxation effect, it chose the assume understood when word. *8 by to “allowed” change text from “allowable” he contends legal change He asserts policy. in state legislature indicated with is consistent “allowed” and “allowable” between distinction law, from cases points and our attention other areas taxation (Ind. Eberbach, re jurisdictions Estate other —In Revenue, 1989), Mary 62 S.W3d S. Riethmann Trust v. Director of (Mo. agreed with the lower Eberbach, Supreme In the Indiana Court section finding estate between the that the owed difference court’s government and actually permitted by the federal 2011 credit paid. reasoned because the death tax The court amount of “allowable,” the than the word “allowed” rather legislature chose only of credit “encompass intended to the amount legislature Eberbach, 535 have used.” and not the amount that could been used at 1196. N.E.2d Riethmann, meant “the amount parties agreed “allowed” liability payment
by which federal estate tax reduced actual taxes,” disputed meaning of the state “allowable.” death but Riethmann, 48. “al- Supreme 62 S.W.3d at The Missouri Court held permitted against credit the actual lowable” meant amount of are Rieth- payable federal estate tax after all other credits taken.” mann, 62 S.W3d at 48. The decedent’s estate able to reduce was prior The court way federal tax to zero of a transfer credit. taxes, any that it did not estatе it did not held because owe federal legislative state estate taxes. The reasoned the intent behind owe court pick-up government statute was to divert from the federal revenue the state. estate after the Because estate owed federal taken, “allowable,” prior credit for transfers no credit was was did law. the estate not owe tax under Missouri persuade Eberbach not us that the Illinois and Riethmann do respective Tax Act Estate should be read as the estate taxation statutes foreign read each case. are section were unconvinced when amended, legislature had in mind the definition of Illinois provided by foreign prior “allowed” two cases to the enactment of schemes pick-up EGTRRA. Eberbach and Riethmann involved taxation coupled law, eliminated state tax fully with federal which has highest credit under court of Missouri section Indiana, legislative goal of those state schemes was the clear imposing additional burden on its residents. Amended avoid an 2(a), hand, longer fully coupled on the other is no law, the section 2011 has es- congressional repeal and thе credit “a sentially like to burden their residents with forced states *** contemporaneous tax rate unrelated federal estate new rate.” 3d at 987. Unlike either Eberbach or Riethmann, brought changes IRS section 2011 about EGTRRA do drive the revenue stream the Illinois *9 2(a). Further, sought by amending by to maintain section the reliance usage the Indiana and Missouri courts the distinction between “al jurisdictions. lowed” and “allowable” not by has been observed other Estate, 555, 562, See In re Mich. App. Lacks 255 662 N.W2d 58 (2003) (construing in Michigan pick-up “allowable” the tax as the case). in construes “allowed” this Eberbach’s and Riethmann’s case, construction of the term “allowed” in provides guidance no this as the distinguishable. taxation schemes at issue in those cases are The distinction between the Indiana and Missouri provisions and the Illinois may legislature’s statute well be the to decision “lock-in” the rates, predated gradual 2001 the which reduction in the state death tax credit under beginning EGTRRA in 2002. statute, argue plain language
The defendants the of coupled the legislative purpose decoupling the of the estate tax Illinois from system the revenue, federal to ordеr retain demonstrates legislature intended for the estate to an tax in pay Illinois estate this case, even where section 2011 credit is claimed on federal its return. We are compelled agree. to acknowledges
The executor
in his second-amended complaint,
case,
echoed in
stipulation
in this
that the preamended pick-up
version of the Estate
an
imposed
“equal
estate tax
to the
maximum allowable [IRC] Section 2011 credit for state death taxes.”
added.)
(West 2002)
405/3(b)
(Emphasis
See 35 ILCS
(defining allowable”);
estate tax as “the maximum state tax credit
35 ILCS
(West 2002) (defining “State tax credit” as
credit
for state
405/2
2011”);
tax allowable under Section
see also
366 Ill.
3d
(“since 1983,
at 977
Illinois law has taxed an
estate at
maximum
credit”).
rate
nothing
allowable
federal
There is
in the
language of
legislature sought
amended section
to indicate the
to
anything
do
if
but continue
former taxation scheme as EGTRRA
did not exist. We are
that amended
unconvinced
section
demon
See,
change
legislative
Bohl,
strates a
at
purpose.
e.g.,
Elder L.J.
2(a),
(by amending
sought
“ignore”
phase
section
State
(“As
credit);
amended,
Berek,
оut of
CONCLUSION of Il- imposition avoid the may hold Brooker estate a tax situs property taxes a taxable transfer with linois estate for credit electing forego a merely within the State on its federal tax return. state taxes under IRC section 2011 death an provides Estate Tax Act no basis for estate to avoid a obligations choоsing not to claim state simply taxable event Irrespective its federal tax return. whether the estate credit on credit, may taxes due “as the choose to claim a Illinois estate are computed allowed under the Illinois credit would have been *10 Revenue Code as 2001.” The circuit court effect December partial summary judgment erred it entered favor of execu- when tor. cause is and remanded with directions to enter sum-
This reversed mary judgment favor of the defendants. and remanded with directions.
Reversed JUSTICE concurs. WOLFSON HALL, dissenting:
JUSTICE I that majority’s determination respectfully dissent from may imposition of Illinois estate Brooker estate not avoid rules of failing to claim a credit on its federal tax return. Well-settled that circuit court’s decision be af- statutory require construction firmed.
I
agree
majority
goal
statutory
that the
is to
give
legislative body.
ascertain and
effect to the intent of the
is
However,
simplest
effectuating
goal
surest
this
means of
statutory
plain
read
their
language
give
itself and
words
Education,
ordinary meaning.”
Township High
Joliet
School
Board of
supreme
has cautioned
District No.
The result reached ignore circuit court this case does not legislative protect intent to changes revenue source from majority cases, federal tax code. In the the credit be taken. will facts present case make it an exception to the rule.
I affirm would decision the circuit court.
Therefore, I respectfully dissent. ILLINOIS, THE PEOPLE OF THE STATE Plaintiff-Appellee, OF v. BOTSIS, Defendant-Appellant. SPYRIDON C. (1st Division)
First District No. 1—07—3118 Opinion February Rehearing filed denied March 2009.